SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM 8-K
Current Report Pursuant to Section 13 or 15(d) of
THE SECURITIES EXCHANGE ACT OF 1934
Date of Report (Date of earliest event reported):
February 26, 1998
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Commission file number 0-9109 Commission file number 0-9110
MEDITRUST CORPORATION MEDITRUST OPERATING COMPANY
(Exact name of registrant as specified (Exact name of registrant as specified
in its charter) in its charter)
Delaware Delaware
(State or other jurisdiction of (State or other jurisdiction of
incorporation or organization) incorporation or organization)
95-3520818 95-3419438
(I.R.S. Employer Identification No.) (I.R.S. Employer Identification No.)
197 First Avenue, Suite 300 197 First Avenue, Suite 100
Needham Heights, Massachusetts 02194-9127 Needham Heights, Massachusetts 02194-9127
(Address of principal executive (Address of principal executive
offices including zip code) offices including zip code)
(781) 433-6000 (781) 453-8062
(Registrant's telephone number, (Registrant's telephone number,
including area code) including area code)
</TABLE>
<PAGE>
Item 5: OTHER EVENTS
Management's Discussion and Analysis of Financial Condition and Results of
Operations
Certain matters discussed may constitute forward-looking statements within the
meaning of the Private Securities Litigation Reform Act of 1995. Although The
Meditrust Companies ("Companies") consisting of Meditrust Corporation ("Realty")
and Meditrust Operating Company ("Operating"), believe the statements are based
on reasonable assumptions, the Companies can give no assurance that their
expectations will be attained. Actual results and timing of certain events could
differ materially from those projected in or contemplated by the forward-looking
statements due to a number of factors, including, without limitation, general
economic and real estate conditions, the availability of equity and debt
financing for acquisitions and renovations, interest rates, competition for
hotel services in a given market, the enactment of legislation impacting the
Companies' status as a paired share real estate investment trust ("REIT") or
Realty's status as a REIT and other risks detailed from time to time in the
filings of Realty and Operating with the Securities and Exchange Commission,
including, without limitation, quarterly reports on Form 10-Q, reports on Form
8-K, and annual reports on Form 10-K.
The basis of presentation includes Management Discussion and Analysis of
Financial Condition and Results of Operations for the combined and separate SEC
registrants. Management of the Companies believe that combined presentation is
most beneficial to the reader. However it should be noted that combined results
of operations for the year ended December 31, 1997 compared to the year ended
December 31, 1996, as well as the combined liquidity and capital resources are
principally related to the activity of Realty, as Operating commenced operations
on October 3, 1997 and is not material to the results of the combined entities.
The Meditrust Companies - Combined Results of Operations
Year Ended December 31, 1997 vs. Year Ended December 31, 1996
Revenues for the year ended December 31, 1997 were $294,355,000 compared
to $254,024,000 for the year ended December 31, 1996, an increase of $40,331,000
or 16%. Revenue growth was primarily attributed to increased rental income of
$28,749,000 and increased interest income of $6,287,000. These increases
resulted from additional real estate investments made over the last twelve
months. The remaining increase to revenue of approximately $5,295,000 was
primarily from horse racing operations following the merger with The Santa Anita
Companies (the "Merger") on November 5, 1997. Revenue from horse racing was
generated primarily during December 26 through December 31, 1997, which was the
beginning of the live racing season.
For the year ended December 31, 1997, total expenses increased by
$35,895,000. Interest expense increased by $23,212,000 due to increases in debt
outstanding resulting from additional real estate investments made over the past
twelve months. This increase was partially offset by lower interest rates
compared to 1996. Depreciation and amortization increased by $5,474,000, as a
result of increased real estate investments and associated debt issuance costs.
Amortization of goodwill increased $793,000 as a result of amortization of the
excess purchase price over fair value assets acquired in the Merger. Horse race
operating costs of $4,263,000 were incurred during the period following the
Merger and included substantial repair and maintenance costs incurred to prepare
and upgrade the track for the live racing season. General and administrative
2
<PAGE>
Item 5: OTHER EVENTS, Continued
Management's Discussion and Analysis of Financial Condition and Results of
Operations
The Meditrust Companies - Combined Results of Operations, Continued
and other expenses increased by $2,153,000, principally due to a higher level of
operating costs associated with portfolio growth and as a result of the Merger.
Net income for the year ended December 31, 1997 was $162,412,000
compared to $157,976,000 for the year ended December 31, 1996, an increase of
$4,436,000 or 3%. Net income per Paired Common Share ("Share") decreased to
$2.14 for the year ended December 31, 1997 compared to $2.21 for the year ended
December 31, 1996, a decrease of $.07 or 3%. The per Share decrease was
primarily due to dilution caused by the Merger. Per Share amounts have been
restated to reflect the exchange of Meditrust Shares of Beneficial Interest
("SBI") for Shares of the Companies pursuant to the Merger. In connection with
the Merger, 24,822,000 additional Shares are now outstanding.
Year Ended December 31, 1996 vs. Year Ended December 31, 1995
Revenues for the year ended December 31, 1996 were $254,024,000 compared
to $209,369,000 for the year ended December 31, 1995, an increase of $44,655,000
or 21%. Revenue growth was attributed to increased rental income of $23,503,000
and increased interest income of $21,152,000. These increases were principally
the result of additional real estate investments made during 1996. There were no
revenues or expenses associated with Meditrust Operating Company in 1996 or
1995.
For the year ended December 31, 1996, total expenses increased by
$6,651,000. Interest expense increased by $53,000 due to increases in debt
outstanding resulting from additional real estate investments. This increase was
partially offset by an equity offering in February, 1996, and lower interest
rates on the notes outstanding during 1996 compared to those outstanding during
1995. Depreciation and amortization increased by $5,031,000, as a result of
increased real estate investments. General and administrative expenses increased
by $1,567,000, principally due to a higher level of operating costs associated
with portfolio growth and the issuance of SBI for executive compensation, a
non-cash expense.
Combined Liquidity and Capital Resources
As of December 31, 1997, the Companies' gross real estate investments
totaled approximately $3,060,604,000, consisting of 282 long-term care
facilities, 172 retirement and assisted living facilities, 28 medical office
buildings, 26 rehabilitation hospitals, six alcohol and substance abuse
treatment facilities and psychiatric hospitals, one acute care hospital campus,
one racetrack, a 50% interest in a fashion mall and land held for development.
As of December 31, 1997, the Companies' outstanding commitments for additional
financing totaled approximately $232,160,000 for the completion of 13 medical
office buildings, eight long-term care facilities and 38 assisted living
facilities currently under construction and additions to existing facilities in
the portfolio.
3
<PAGE>
Item 5: OTHER EVENTS, Continued
The Meditrust Companies - Combined Liquidity and Capital Resources, continued
The Companies provide funding for their investments through a combination
of long-term and short-term financing including both debt and equity. The
Companies obtain long-term financing through the issuance of Shares, long-term
unsecured notes, convertible debentures and the assumption of mortgage notes.
The Companies obtain short-term financing through the use of bank lines of
credit which are replaced with long-term financing as appropriate. From time to
time, the Companies may utilize interest rate caps or swaps to attempt to hedge
interest rate volatility. It is the Companies' objective to match mortgage and
lease terms with the terms of their borrowings. The Companies attempt to
maintain an appropriate spread between their borrowing costs and the rate of
return on their investments. When development loans convert to sale/leaseback
transactions or permanent mortgage loans, the base rent or interest rate, as
appropriate, is fixed at the time of such conversion. There is, however, no
assurance that the Companies will satisfactorily achieve, if at all, the
objectives set forth in this paragraph.
On August 7, 1997, Realty completed the sale of $160,000,000 of 7% notes
due August 15, 2007. Realty also completed the sale of $100,000,000 in notes due
August 15, 2002 bearing interest at LIBOR plus .45 % (6.14% on November 15,
1997), such interest is subject to reset quarterly during the first year of the
loan. Subsequent to the first year of the loan, the character and duration of
the interest rate will be determined periodically by Realty and the underwriter.
Realty also completed the sale of $150,000,000 of 7.114% notes due August 15,
2011. The notes were sold to a trust from which exercisable put option
securities due August 15, 2004, each representing a fractional undivided
beneficial interest in the trust, were issued. The trust has entered a call
option pursuant to which the callholder has the right to purchase the notes from
the trust on August 15, 2004 at par value. The trust also has a put option,
which it is required to exercise if the callholder does not exercise the call
option, pursuant to which Realty must repurchase the notes at par value on
August 15, 2004. A portion of the net proceeds from the sale of the notes
described above was used to repay the outstanding balance on the unsecured
revolving line of credit and other unsecured short-term borrowings.
On October 3, 1997, Meditrust paid a stock dividend to shareholders of
record on that date of one SBI, without par value, of its wholly-owned
subsidiary Meditrust Acquisition Company ("MAC"), a Massachusetts business trust
for each SBI of Meditrust. MAC was organized to accomplish the Merger and had
conducted no business other than in connection with the Merger prior to November
5, 1997.
On November 5, 1997, Meditrust merged with Santa Anita Realty
Enterprises, Inc., with Santa Anita Realty Enterprises, Inc. as the surviving
corporation, and MAC merged with Santa Anita Operating Company, with Santa Anita
Operating Company as the surviving corporation. Upon completion of the Mergers,
Santa Anita Realty Enterprises, Inc. changed its corporate name to "Meditrust
Corporation" and Santa Anita Operating Company changed its corporate name to
"Meditrust Operating Company". The Mergers were accounted for as reverse
acquisitions whereby Meditrust and MAC were treated as the acquirers for
accounting purposes. Shareholders of Meditrust received 1.2016 Shares for each
SBI of Meditrust they owned in a tax-free exchange of shares and approximately
12,366,000 Shares were held and retained by former Santa Anita shareholders.
4
<PAGE>
Item 5: OTHER EVENTS, Continued
The Meditrust Companies - Combined Liquidity and Capital Resources, continued
On December 19, 1997, Realty invested an additional $13,473,000 in
Nursing Home Properties Plc ("NHP Plc") raising its total equity investment to
$26,982,000, at cost. The investment consists of 14,285,000 shares of common
stock, and represents a 19.99% interest, however, Realty does not have the right
to vote more than 9.99% of the shares of NHP Plc. NHP Plc is a property
investment group that specializes in the financing, through sale and leaseback
transactions, of nursing homes located in the United Kingdom. As of its fiscal
year ended September 30, 1997, NHP Plc had invested or committed to invest
approximately $288,000,000 in 92 nursing homes, totaling 5,289 beds.
The Companies had shareholders' equity of $1,825,739,000 and debt
constituted 43% of the Companies' total capitalization as of December 31, 1997.
On January 3, 1998, the Companies signed a definitive merger agreement
with La Quinta Inns, Inc. ("La Quinta") providing for, among other transactions,
the merger of La Quinta with and into Realty. The total consideration for the
transaction will amount to $26.00 per share of La Quinta, in a combination of
newly issued Shares in the Companies and cash, subject to certain cap and collar
mechanisms. The transaction is expected to close in the second quarter of 1998.
During the last week of January 1998, the Companies' stock price decreased which
may result in more Shares being issued by the Companies to complete the
transaction than was originally expected. Depending upon how many additional
Shares, if any, are issued, the transaction may not be as accretive, on a per
Share basis as had previously been disclosed.
On January 9, 1998, the Board of Directors of Realty declared a
distribution of $.60625 per Share payable February 13, 1998, to shareholders of
record on January 30, 1998. The distribution related to the post Santa Anita
Merger period ended December 31, 1997.
On January 11, 1998, Realty signed a definitive merger agreement with
Cobblestone Holdings, Inc., parent of Cobblestone Golf Group, Inc.,
("Cobblestone"), under which the Companies will acquire all of the outstanding
preferred and common stock of Cobblestone for Shares valued at approximately
$241,000,000. In addition, under the terms of the agreement, approximately
$154,000,000 of Cobblestone debt and associated costs will be either refinanced
or assumed as a condition of closing. The transaction is anticipated to close in
late February 1998.
As of February 13, 1998, Realty had unsecured revolving lines of credit
expiring September 23, 1999 in the aggregate amount of $365,000,000 bearing
interest at the lender's prime rate (8.5%) or LIBOR plus .875% (6.5% at February
13, 1998). A total of $106,000,000 was available from all credit facilities at
February 13, 1998. In addition, the Companies have filed a shelf registration
statement with the Securities and Exchange Commission under which the Companies
may issue, upon effectiveness, $2,000,000,000 of securities including Shares,
Preferred Shares, debt, series common stock, convertible debt and warrants to
purchase Shares, Preferred Shares, debt, series common stock and convertible
debt.
5
<PAGE>
Item 5: OTHER EVENTS, Continued
The Meditrust Companies - Combined Liquidity and Capital Resources, continued
On February 26, 1998, the Companies entered into two transactions with
Merrill Lynch International, a UK-based broker/dealer subsidiary of Merrill
Lynch & Co., Inc. ("MLI"). Pursuant to the terms of a stock purchase agreement,
MLI agreed to purchase 8,500,000 shares of Series A Non-Voting Convertible
Common Stock from each of the Companies at a purchase price of $32.625 per
share. The Series A Non-Voting Convertible Common Stock is non-voting paired
common stock that will convert to Paired Common Shares on the earlier of (a) the
business day following the date on which the stockholders of the Companies have
approved the La Quinta merger transaction or (b) the date of any termination of
the La Quinta merger agreement. Net proceeds from this private placement of
securities of approximately $272,000,000 were used by the Companies to repay
existing indebtedness. Separately, the Companies and MLI entered into a purchase
price adjustment agreement under which Meditrust will, within one year from the
date of MLI's purchase, adjust the original $32.625 purchase price per share
based on the market price of the Shares at the time of the adjustment, by
receiving Shares from MLI or by issuing additional Shares to MLI.
The Companies believe that their various sources of capital are
adequate to finance their operations as well as pending acquisitions, mortgage
financings and future dividends. During 1998, as the Companies identify
appropriate investment opportunities, the Companies may raise additional capital
through the sale of Shares or Preferred Shares, the use of a forward equity
transaction, the issuance of additional long-term debt or through a
securitization transaction.
Realty - Results of Operations and Liquidity and Capital Resources
Year Ended December 31, 1997 vs. Year Ended December 31, 1996
Revenues for the year ended December 31, 1997 were $289,923,000 compared
to $254,024,000 for the year ended December 31, 1996, an increase of $35,899,000
or 14%. Revenue growth was primarily attributed to increased rental income of
$28,749,000 and increased interest income of $6,217,000. These increases
resulted from additional real estate investments made over the last twelve
months. The remaining increase to revenue of approximately $933,000 was
primarily from rent and interest collected from horse racing operations
following the merger with The Santa Anita Companies (the "Merger") on November
5, 1997.
For the year ended December 31, 1997, total expenses increased by
$30,863,000. Interest expense increased by $23,196,000 due to increases in debt
outstanding resulting from additional real estate investments made over the past
twelve months. This increase was partially offset by generally lower interest
rates compared to 1996. Depreciation and amortization increased by $5,303,000,
as a result of increased real estate investments and associated debt issuance
costs. Amortization of goodwill increased $658,000 as a result of amortization
of the excess purchase price over assets acquired in the Merger. General and
administrative and other expenses increased by $1,706,000, principally due to a
higher level of administrative costs associated with portfolio growth and as a
result of the Merger.
6
<PAGE>
Item 5: OTHER EVENTS, Continued
Realty - Results of Operations and Liquidity and Capital Resources
Year Ended December 31, 1997 vs. Year Ended December 31, 1996
Net income for the year ended December 31, 1997 was $163,012,000
compared to $157,976,000 for the year ended December 31, 1996, an increase of
$5,036,000 or 3%. Net income per common share decreased to $2.14 for the year
ended December 31, 1997 compared to $2.21 for the year ended December 31, 1996,
a decrease of $.07 or 3%. The per common share decrease was primarily due to
dilution caused by the Merger. Per common share amounts have been restated to
reflect the exchange of Meditrust Shares of Beneficial Interest ("SBI") for
common shares pursuant to the Merger. In connection with the Merger, 26,127,000
additional Shares are now outstanding.
Year Ended December 31, 1996 vs. Year Ended December 31, 1995
Revenues for the year ended December 31, 1996 were $254,024,000 compared
to $209,369,000 for the year ended December 31, 1995, an increase of $44,655,000
or 21%. Revenue growth was attributed to increased rental income of $23,503,000
and increased interest income of $21,152,000. These increases were principally
the result of additional real estate investments made during 1996.
For the year ended December 31, 1996, total expenses increased by
$6,651,000. Interest expense increased by $53,000 due to increases in debt
outstanding resulting from additional real estate investments. This increase was
partially offset by an equity offering in February, 1996, and lower interest
rates on the notes outstanding during 1996 compared to those outstanding during
1995. Depreciation and amortization increased by $5,031,000, as a result of
increased real estate investments. General and administrative expenses increased
by $1,567,000, principally due to a higher level of operating costs associated
with portfolio growth and the issuance of SBI for executive compensation, a
non-cash expense.
Liquidity and Capital Resources
As of December 31, 1997, Realty gross real estate investments totaled
approximately $3,060,604,000, consisting of 282 long-term care facilities, 172
retirement and assisted living facilities, 28 medical office buildings, 26
rehabilitation hospitals, six alcohol and substance abuse treatment facilities
and psychiatric hospitals, one acute care hospital campus, one racetrack, a 50%
interest in a fashion mall and land held for development. As of December 31,
1997, outstanding commitments by Realty for additional financing totaled
approximately $232,160,000 for the completion of 13 medical office buildings,
eight long-term care facilities and 38 assisted living facilities currently
under construction and additions to existing facilities in the portfolio.
Realty provides funding for investments through a combination of
long-term and short-term financing including both debt and equity. Realty
obtains long-term financing through the issuance of common shares, long-term
unsecured notes, convertible debentures and the assumption of mortgage notes.
Realty obtains short-term financing through the use of bank lines of credit
which are replaced with long-term financing as appropriate. From time to time,
Realty may utilize
7
<PAGE>
Item 5: OTHER EVENTS, Continued
Realty - Liquidity and Capital Resources
interest rate caps or swaps to attempt to hedge interest rate volatility. It is
the objective of Realty to match mortgage and lease terms with the terms of its
borrowings. Realty attempts to maintain an appropriate spread between borrowing
costs and the rate of return on investments. When development loans convert to
sale/leaseback transactions or permanent mortgage loans, the base rent or
interest rate, as appropriate, is fixed at the time of such conversion. There
is, however, no assurance that Realty will satisfactorily achieve, if at all,
the objectives set forth in this paragraph.
On August 7, 1997, Realty completed the sale of $160,000,000 of 7% notes
due August 15, 2007. Realty also completed the sale of $100,000,000 in notes due
August 15, 2002 bearing interest at LIBOR plus .45 % (6.14% on November 15,
1997), such interest is subject to reset quarterly during the first year of the
loan. Subsequent to the first year of the loan, the character and duration of
the interest rate will be determined periodically by Realty and the underwriter.
Realty also completed the sale of $150,000,000 of 7.114% notes due August 15,
2011. The notes were sold to a trust from which exercisable put option
securities due August 15, 2004, each representing a fractional undivided
beneficial interest in the trust, were issued. The trust has entered a call
option pursuant to which the callholder has the right to purchase the notes from
the trust on August 15, 2004 at par value. The trust also has a put option,
which it is required to exercise if the callholder does not exercise the call
option, pursuant to which Realty must repurchase the notes at par value on
August 15, 2004. A portion of the net proceeds from the sale of the notes
described above was used to repay the outstanding balance on the unsecured
revolving line of credit and other unsecured short-term borrowings.
On October 3, 1997, Meditrust paid a stock dividend to shareholders of
record on that date of one SBI, without par value, of its wholly-owned
subsidiary Meditrust Acquisition Company ("MAC"), a Massachusetts business trust
for each SBI of Meditrust. MAC was organized to accomplish the Merger and had
conducted no business other than in connection with the Merger prior to November
5, 1997.
On December 19, 1997, Realty invested an additional $13,473,000 in
Nursing Home Properties Plc ("NHP Plc") raising its total equity investment to
$26,982,000, at cost. The investment consists of 14,285,000 shares of common
stock, and represents a 19.99% interest, however, Realty does not have the right
to vote more than 9.99% of the shares of NHP Plc. NHP Plc is a property
investment group that specializes in the financing, through sale and leaseback
transactions, of nursing homes located in the United Kingdom. As of its fiscal
year ended September 30, 1997, NHP Plc had invested or committed to invest
approximately $288,000,000 in 92 nursing homes, totaling 5,289 beds.
Realty had shareholders' equity of $1,792,240,000 and debt constituted
43% of total capitalization as of December 31, 1997.
On January 3, 1998, the Companies signed a definitive merger agreement
with La Quinta Inns, Inc. ("La Quinta") providing for, among other transactions,
the merger of La Quinta with and into Realty. The total consideration for the
transaction will amount to $26.00 per share of La Quinta, in a combination of
newly issued Shares in the Companies and cash, subject to certain cap
8
<PAGE>
Item 5: OTHER EVENTS, Continued
Realty - Liquidity and Capital Resources
and collar mechanisms. The transaction is expected to close in the second
quarter of 1998. During the last week of January 1998, the Companies' stock
price decreased which may result in more Shares being issued by the Companies to
complete the transaction than was originally expected. Depending upon how many
additional Shares, if any, are issued, the transaction may not be as accretive,
on a per Share basis as had previously been disclosed.
On January 9, 1998, the Board of Directors of Realty declared a
distribution of $.60625 per Share payable February 13, 1998, to shareholders of
record on January 30, 1998. The distribution related to the post Santa Anita
Merger period ending December 31, 1997.
On January 11, 1998, Realty signed a definitive merger agreement with
Cobblestone Holdings, Inc., parent of Cobblestone Golf Group, Inc.,
("Cobblestone"), under which Realty will acquire all of the outstanding
preferred and common stock of Cobblestone for Shares valued at approximately
$241,000,000. In addition, under the terms of the agreement, approximately
$154,000,000 of Cobblestone debt and associated costs will be either refinanced
or assumed as a condition of closing. The transaction is anticipated to close in
the first quarter of 1998.
As of February 13, 1998, Realty had unsecured revolving lines of credit
expiring September 23, 1999 in the aggregate amount of $365,000,000 bearing
interest at the lender's prime rate (8.5%) or LIBOR plus .875% (6.5% at February
13, 1998). A total of $106,000,000 was available from all credit facilities at
February 13, 1998. In addition, the Companies have filed a shelf registration
statement with the Securities and Exchange Commission under which the Companies
may issue, upon effectiveness, $2,000,000,000 of securities including Shares,
Preferred Shares, debt, series common stock, convertible debt and warrants to
purchase Shares, Preferred Shares, debt, series common stock and convertible
debt.
On February 26, 1998, the Companies entered into two transactions with
Merrill Lynch International, a UK-based broker/dealer subsidiary of Merrill
Lynch & Co., Inc. ("MLI"). Pursuant to the terms of a stock purchase agreement,
MLI agreed to purchase 8,500,000 shares of Series A Non-Voting Convertible
Common Stock from each of the Companies at a purchase price of $32.625 per
share. The Series A Non-Voting Convertible Common Stock is non-voting paired
common stock that will convert to Paired Common Shares on the earlier of (a) the
business day following the date on which the stockholders of the Companies have
approved the La Quinta merger transaction or (b) the date of any termination of
the La Quinta merger agreement. Net proceeds from this private placement of
securities of approximately $272,000,000 were used by the Companies to repay
existing indebtedness. Separately, the Companies and MLI entered into a purchase
price adjustment agreement under which Meditrust will, within one year from the
date of MLI's purchase, adjust the original $32.625 purchase price per share
based on the market price of the Shares at the time of the adjustment, by
receiving Shares from MLI or by issuing additional Shares to MLI.
Realty believes that various sources of capital available over the next
twelve months are adequate to finance pending acquisitions, mortgage financings
and dividends. During 1998, as Realty identifies appropriate investment
opportunities, Realty may raise additional capital through the sale of common
shares or preferred shares, the use of a forward equity transaction, the
issuance of additional long-term debt or through a securitization transaction.
9
<PAGE>
Item 5: OTHER EVENTS, Continued
Management's Discussion and Analysis of Financial Condition and Results of
Operations
Operating - Results of Operations and Liquidity and Capital Resources
Year Ended December 31, 1997
Operating commenced operations on October 3, 1997, however, no business
was conducted other than in connection with the Merger prior to November 5,
1997. The results of Operating subsequent to the Merger reflect the horse racing
operations of the Santa Anita Racetrack. Revenues from horse racing were
primarily generated during the period December 26, 1997 through December 31,
1997, which was the beginning of the live racing season.
Liquidity and Capital Resources
Operating provides funding from racetrack operations and through a
combination of long-term and short-term financing including both debt and
equity. Operating obtains long-term financing through the issuance of common
shares and unsecured notes. Operating obtains short-term financing through
borrowings from Realty.
On October 3, 1997, Meditrust paid a stock dividend to shareholders of
record on that date of one SBI, without par value, of its wholly-owned
subsidiary Meditrust Acquisition Company ("MAC"), a Massachusetts business trust
for each SBI of Meditrust. MAC was organized to accomplish the Merger and had
conducted no business other than in connection with the Merger prior to November
5, 1997.
Operating had shareholders' equity of $57,952,000 and debt constituted
35% of total capitalization as of December 31, 1997.
On January 3, 1998, the Companies signed a definitive merger agreement
with La Quinta Inns, Inc. ("La Quinta") providing for, among other transactions,
the merger of La Quinta with and into Realty. The total consideration for the
transaction will amount to $26.00 per share of La Quinta, in a combination of
newly issued Shares in the Companies and cash, subject to certain cap and collar
mechanisms. The transaction is expected to close in the second quarter of 1998.
During the last week of January 1998, the Companies' stock price decreased which
may result in more Shares being issued by the Companies to complete the
transaction than was originally expected. Depending upon how many additional
Shares, if any, are issued, the transaction may not be as accretive, on a per
Share basis as had previously been disclosed.
The Companies have filed a shelf registration statement with the
Securities and Exchange Commission under which the Companies may issue, upon
effectiveness, $2,000,000,000 of securities including Shares, Preferred Shares,
debt, series common stock, convertible debt and warrants to purchase Shares,
Preferred Shares, debt, series common stock and convertible debt.
On February 26, 1998, the Companies entered into two transactions with
Merrill Lynch International, a UK-based broker/dealer subsidiary of Merrill
Lynch & Co., Inc. ("MLI"). Pursuant to the terms of a stock purchase agreement,
MLI agreed to purchase 8,500,000 shares of Series A Non-Voting Convertible
Common Stock from each of the Companies at a purchase price of $32.625 per
share. The Series A Non-Voting Convertible Common Stock is non-voting paired
common stock that will convert to Paired Common Shares on the earlier of (a) the
business day following the date on which the stockholders of the Companies have
approved the La Quinta merger transaction or (b) the date of any termination of
the La Quinta merger agreement. Net proceeds from this private placement of
securities of approximately $272,000,000 were used by the Companies to repay
existing indebtedness. Separately, the Companies and MLI entered into a purchase
price adjustment agreement under which Meditrust will, within one year from the
date of MLI's purchase, adjust the original $32.625 purchase price per share
based on the market price of the Shares at the time of the adjustment, by
receiving Shares from MLI or by issuing additional Shares to MLI.
10
<PAGE>
Item 5: OTHER EVENTS, Continued
Operating - Liquidity and Capital Resources
Operating believes that various sources of capital available over the
next twelve months are adequate to finance operations as well as pending
acquisitions. During 1998, as Operating identifies appropriate investment
opportunities, Operating may raise additional capital through the sale of common
shares or preferred shares, the use of a forward equity transaction, the
issuance of additional long-term debt or through a securitization transaction.
Recent Legislative Developments
On February 2, 1998, the Department of Treasury released an explanation
of the revenue proposals included in the Clinton Administration's fiscal 1999
budget (the "Tax Proposals"). The Tax Proposals include a freeze on the
grandfathered status of paired share REITs such as The Meditrust Companies.
Under this proposal, Realty and Operating would be treated as one entity with
respect to properties acquired on or after the date of the first Congressional
committee action with respect to such proposal and with respect to activities or
services relating to such properties that are undertaken or performed by one of
the paired entities on or after such date. No exception is provided for
properties acquired pursuant to pre-existing binding contracts. This proposal
would prevent The Meditrust Companies from using their paired structure to
operate properties acquired on or after such effective date. The Tax Proposals
also would prohibit REITs from holding stock of a corporation possessing more
than 10% of the vote or value of all classes of stock of the corporation. This
proposal would be effective with respect to stock acquired on or after the date
of the first Congressional committee action with respect to the proposal;
provided that the proposal would apply to stock acquired before such effective
date if the subsidiary corporation engaged in a new trade or business or
acquired substantial new assets. If the Tax Proposals are enacted in their
current form, and the merger with La Quinta or Cobblestone closes on or after
the date of first committee action, Operating (including corporate subsidiaries
of Realty that are controlled by Operating) would not be able to operate the
properties acquired by Realty in the merger in the manner currently contemplated
without disqualifying Realty as a REIT. Moreover, the Treasury's explanation
provides only a general description of the Tax Proposals, and the details of the
statutory amendments that would implement the proposals are not known.
Consequently, it is impossible to determine all of the ramifications to the
Companies of the Tax
11
<PAGE>
Item 5: OTHER EVENTS, Continued
Recent Legislative Developments, Continued
Proposals. Restructuring the operations of Realty and Operating to comply with
the rules contemplated by the Tax Proposals could cause The Meditrust Companies
to incur substantial tax liabilities, to recognize an impairment loss on their
goodwill asset or otherwise adversely affect The Meditrust Companies.
Year 2000
The Companies are assessing the potential impact on information systems
as a result of reaching the year 2000. Presently, Realty believes their current
systems are year 2000 compliant and would not expect any costs associated to be
material to the Companies' financial position or results of operations.
Operating is in the process of determining what, if any, cost would be incurred
to remedy existing information systems. Additionally, the Companies will assess
what costs, if any, would be required to remedy business operations of acquired
companies in the future.
Newly Issued Accounting Standards
Financial Accounting Standards Board Statement No. 129 ("FAS 129")
"Disclosure of Information about Capital Structure" is effective for financial
statements issued for periods ending after December 31, 1997. FAS 129
establishes standards for disclosure of information about securities,
liquidation preference of preferred stock and redeemable stock.
Financial Accounting Standards Board Statement No. 130 ("FAS 130")
"Reporting Comprehensive Income" is effective for fiscal years beginning after
December 15, 1997, although earlier application is permitted. The Companies
intend to adopt the requirements of this pronouncement in their financial
statements for the year ending December 31, 1998. FAS 130 establishes standards
for reporting and display of comprehensive income and its components in a full
set of general-purpose financial statements. FAS 130 requires that all
components of comprehensive income shall be reported in the financial statements
in the period in which they are recognized. Furthermore, a total amount for
comprehensive income shall be displayed in the financial statement where the
components of other comprehensive income are reported. The Companies were not
previously required to present comprehensive income or the components thereof in
their financial statements under generally accepted accounting principles.
Financial Accounting Standards Board Statement No. 131 ("FAS 131")
"Disclosure about Segments of an Enterprise and Related Information" is
effective for financial statements issued for periods beginning after December
15, 1997. FAS 131 requires disclosures about segments of an enterprise and
related information regarding the different types of business activities in
which an enterprise engages and the different economic environments in which it
operates.
The Companies do not believe that the implementation of FAS 129 or FAS
130 will have a material impact on their financial statements. Due to the
Companies' plans for acquisitions of companies in a variety of business
segments, the Companies are in the process of evaluating the effect of the
implementation of FAS 131.
12
<PAGE>
Item 7. FINANCIAL STATEMENTS AND EXHIBITS
(c) Exhibits
Exhibit No. Description
---------- -----------
23 Consent of Coopers & Lybrand L.L.P.
27 Financial Data Schedule
99 Combined and Consolidated Financial Statements of The
Meditrust Companies and Meditrust Corporation at December
31, 1997 and 1996, and Meditrust Operating Company at
December 31, 1997 and the results of The Combined
Meditrust Companies and Meditrust Corporation for the
years ended December 31, 1997, 1996 and 1995, and
Meditrust Operating Company for the period October 3,
1997 to December 31, 1997.
SIGNATURES
Pursuant to the requirements of the Securities Exchange Act of 1934, the
registrant has duly caused this report to be signed on its behalf by the
undersigned hereunto duly authorized.
Meditrust Corporation
---------------------
February 26, 1998 /s/ Laurie T. Gerber
--------------------
Laurie T. Gerber
Chief Financial Officer
Meditrust Operating Company
February 26, 1998 /s/ Abraham D. Gosman
---------------------
Abraham D. Gosman
Chief Executive Officer
13
Exhibit 23
CONSENT OF INDEPENDENT PUBLIC ACCOUNTANTS
We hereby consent to the incorporation by reference in the registration
statements of Meditrust Corporation and/or Meditrust Operating Company on Form
S-8 (File Nos. 333-39771, 333-39771-01, 333-36083, 333-36083-01, 33-51843 and
33-51843-01), Form S-3 (File Nos. 333-40055, 333-40055-01, 333-41019,
333-41019-01, 333-01843, 33-59215, 33-56663, 33-50835 and 33-45979) and on Form
S-4 (333-34831 and 333-34831-01) of our report dated January 30, 1998, except
for Note 16 for which the date is February 26, 1998, on our audits of the
financial statements of The Meditrust Companies and Meditrust Corporation as of
December 31, 1997 and 1996, and for the years ended December 31, 1997, 1996 and
1995, and Meditrust Operating Company as of December 31, 1997 and for the
initial period ended December 31, 1997, which report is included in this Current
Report on Form 8-K.
Boston, Massachusetts
February 26, 1998 /s/ Coopers & Lybrand L.L.P.
14
Exhibit 99
Report of Independent Accountants
To the Shareholders and Board of Directors of Meditrust Corporation and
Meditrust Operating Company:
We have audited the accompanying financial statements of The Combined
Meditrust Companies, Meditrust Corporation and Meditrust Operating Company.
These financial statements are the responsibility of the Companies' management.
Our responsibility is to express an opinion on these financial statements based
on our audits.
We conducted our audits in accordance with generally accepted auditing
standards. Those standards require that we plan and perform the audit to obtain
reasonable assurance about whether the financial statements are free of material
misstatement. An audit includes examining, on a test basis, evidence supporting
the amounts and disclosures in the financial statements. An audit also includes
assessing the accounting principles used and significant estimates made by
management, as well as evaluating the overall financial statement presentation.
We believe that our audits provide a reasonable basis for our opinion.
In our opinion, the financial statements referred to above present
fairly, in all material respects, the financial position of The Combined
Meditrust Companies and Meditrust Corporation at December 31, 1997 and 1996, and
Meditrust Operating Company at December 31, 1997 and the results of The Combined
Meditrust Companies and Meditrust Corporation operations and changes in cash
flows for each of the three years in the period ended December 31, 1997, and
Meditrust Operating Company for the period from October 3, 1997 to December 31,
1997, in conformity with generally accepted accounting principles.
15
<PAGE>
Exhibit 99
Report of Independent Accountants, Continued
As discussed in Note 1 to the combined consolidated financial statements,
Meditrust merged with Santa Anita Realty and Meditrust Acquisition Company
merged with Santa Anita Operating Company effective November 5, 1997. The
mergers were accounted for as reverse acquisitions with Meditrust and Meditrust
Acquisition Company treated as acquirers for accounting purposes even though
Santa Anita Realty and Santa Anita Operating Company remained the continuing
legal entities. Santa Anita Realty was renamed Meditrust Corporation and Santa
Anita Operating Company was renamed Meditrust Operating Company. Accordingly,
the combined consolidated financial statements of The Meditrust Companies, the
consolidated financial statements of Meditrust Corporation and the consolidated
financial statements of Meditrust Operating Company for the periods before
October 3, 1997 are those of combined Meditrust and Meditrust Acquisition
Company, Meditrust, and Meditrust Acquisition Company, respectively, which
differ from the combined consolidated financial statements of the Santa Anita
Companies, the consolidated financial statements of Santa Anita Realty and the
consolidated financial statements of Santa Anita Operating Company for those
periods.
Coopers and Lybrand L.L.P.
Boston, Massachusetts
January 30, 1998, except for
Note 16 for which the date is
February 26, 1998
16
<PAGE>
THE MEDITRUST COMPANIES
COMBINED CONSOLIDATED BALANCE SHEETS
<TABLE>
<CAPTION>
December 31,
------------------------------
(In thousands) 1997 1996
---- ----
<S> <C> <C>
ASSETS
Real estate investments (Note 4) $2,935,772 $2,188,078
Cash and cash equivalents 43,732 42,726
Fees, interest and other receivables 29,439 20,178
Goodwill 194,893 6,845
Other assets, net (Notes 1 and 5) 120,055 59,048
---------- ----------
Total assets $3,323,891 $2,316,875
========== ==========
LIABILITIES AND SHAREHOLDERS' EQUITY
Indebtedness (Note 8):
Notes payable, net $ 900,594 $ 494,790
Convertible debentures, net 234,000 280,813
Bank notes payable, net 179,527 24,114
Bonds and mortgages payable, net 63,317 59,043
---------- ----------
Total indebtedness 1,377,438 858,760
Deferred revenue 9,054 9,716
Accounts payable, accrued expenses and other liabilities 111,159 63,458
Deferred income taxes 501
---------- ----------
Total liabilities 1,498,152 931,934
---------- ----------
Shareholders' equity:
Shares of beneficial interest without par value; unlimited
shares authorized; 61,349 shares issued and outstanding,
at December 31, 1996 1,520,454
Paired Preferred Stock, $.20 combined par value; 6,000 shares
authorized; no shares issued or outstanding
Paired Series Common Stock, $.20 combined par value; 30,000
shares authorized; no shares issued or outstanding
Paired Common Stock, $.20 combined par value; 270,000 shares
authorized; 88,128 shares issued and outstanding at December 31,
1997 17,626
Additional paid-in-capital 2,001,086
Distributions in excess of net income (192,973) (135,513)
---------- ----------
Total shareholders' equity 1,825,739 1,384,941
---------- ----------
Total liabilities and shareholders' equity $3,323,891 $2,316,875
========== ==========
</TABLE>
The accompanying notes are an integral part of these financial statements
17
<PAGE>
THE MEDITRUST COMPANIES
COMBINED CONSOLIDATED STATEMENTS OF INCOME
<TABLE>
<CAPTION>
For the years ended December 31,
-----------------------------------------------
(In thousands, except per Share data) 1997 1996 1995
---- ---- ----
<S> <C> <C> <C>
Revenue:
Rental $137,868 $109,119 $ 85,616
Interest 151,192 144,905 123,753
Horse racing 5,295
-------- -------- --------
Total revenue 294,355 254,024 209,369
-------- -------- --------
Expenses:
Interest 87,428 64,216 64,163
Depreciation and amortization 27,125 21,651 16,620
Amortization of goodwill 2,349 1,556 1,556
General and administrative 10,558 8,625 7,058
Horse racing operations 4,263
Rental property operations 210
Losses from unconsolidated joint venture 10
-------- -------- --------
Total expenses 131,943 96,048 89,397
-------- -------- --------
Income before extraordinary item 162,412 157,976 119,972
Extraordinary item:
Loss on prepayment of debt (Note 8) 33,454
-------- -------- --------
Net income $162,412 $157,976 $ 86,518
======== ======== ========
Basic earnings per Paired Common Share (Notes 3 and 13):
Net income before extraordinary item $ 2.14 $ 2.21 $ 2.10
Extraordinary item:
Loss on prepayment of debt (Note 8) (0.59)
-------- -------- --------
Net income $ 2.14 $ 2.21 $ 1.51
======== ======== ========
Diluted earnings per Paired Common Share (Notes 3 and 13):
Net income before extraordinary item $ 2.12 $ 2.20 $ 2.09
Extraordinary item:
Loss on prepayment of debt (Note 8) (0.58)
-------- -------- --------
Net income $ 2.12 $ 2.20 $ 1.51
======== ======== ========
Distributions declared per Paired Common Share $ 2.38 $ 2.31 $ 2.25
======== ======== ========
</TABLE>
The accompanying notes are an integral part of these financial statements
18
<PAGE>
THE MEDITRUST COMPANIES
COMBINED CONSOLIDATED STATEMENTS OF CHANGES IN SHAREHOLDERS' EQUITY
For the Years Ended December 31, 1997, 1996 and 1995
<TABLE>
<CAPTION>
Shares of Beneficial Interest or
Paired Common Shares
--------------------------------
Shares Amount
------ ------
<S> <C> <C>
(In thousands)
Balance, December 31, 1994 47,606 $ 860,071
Proceeds from issuance of shares of beneficial
interest, net of offering costs of $16,703 12,316 294,953
Issuance of shares of beneficial interest for:
Conversion of debentures, net of
unamortized issue costs of $628 1,282 30,670
Employee compensation and stock options 290 6,918
Distributions paid
Net income for the year ended December 31, 1995
------- ---------
Balance, December 31, 1995 61,494 1,192,612
Proceeds from issuance of shares of beneficial
interest, net of offering costs of $16,316 11,055 296,484
Issuance of shares of beneficial interest for:
Conversion of debentures, net of
unamortized issue costs of $259 644 15,707
Employee compensation and stock options 524 13,123
Distributions paid
Net income for the year ended December 31, 1996
Change in market value of equity investment in
excess of cost 2,528
------- ---------
Balance, December 31, 1996 73,717 1,520,454
Distribution of MAC shares to Meditrust
shareholders 43,662
Effect of merger with The Santa Anita Companies 12,366 (1,546,898)
Issuance of Paired Common Shares for:
Conversion of debentures, net of
unamortized issue costs of $168 1,589 318
Employee compensation and stock options 456 90
Distributions paid
Net income for the year ended December 31, 1997
Change in market value of equity investment in
excess of cost
------- ---------
Balance, December 31, 1997 88,128 $ 17,626
====== =========
</TABLE>
<TABLE>
<CAPTION>
Distributions
Additional in Excess of
Paid-in Capital Net Income Total
--------------- ------------- -----
<S> <C> <C>
(In thousands)
Balance, December 31, 1994 $ (89,924) $770,147
Proceeds from issuance of shares of beneficial
interest, net of offering costs of $16,703 294,953
Issuance of shares of beneficial interest for:
Conversion of debentures, net of
unamortized issue costs of $628 30,670
Employee compensation and stock options 6,918
Distributions paid (127,451) (127,451)
Net income for the year ended December 31, 1995 86,518 86,518
----------- --------- ---------
Balance, December 31, 1995 (130,857) 1,061,755
Proceeds from issuance of shares of beneficial
interest, net of offering costs of $16,316 296,484
Issuance of shares of beneficial interest for:
Conversion of debentures, net of
unamortized issue costs of $259 15,707
Employee compensation and stock options 13,123
Distributions paid (162,632) (162,632)
Net income for the year ended December 31, 1996 157,976 157,976
Change in market value of equity investment in
excess of cost 2,528
----------- --------- ---------
Balance, December 31, 1996 (135,513) 1,384,941
Distribution of MAC shares to Meditrust
shareholders (43,662)
Effect of merger with The Santa Anita Companies $1,941,954 395,056
Issuance of Paired Common Shares for:
Conversion of debentures, net of
unamortized issue costs of $168 47,675 47,993
Employee compensation and stock options 10,416 10,506
Distributions paid (176,210) (176,210)
Net income for the year ended December 31, 1997 162,412 162,412
Change in market value of equity investment in
excess of cost 1,041 1,041
----------- --------- ----------
Balance, December 31, 1997 $2,001,086 $(192,973) $1,825,739
========== ========= ==========
</TABLE>
The accompanying notes are an integral part of these financial statements
19
<PAGE>
THE MEDITRUST COMPANIES
COMBINED CONSOLIDATED STATEMENTS OF CASH FLOWS
<TABLE>
<CAPTION>
December 31,
-----------------------------------------------
(In thousands) 1997 1996 1995
---- ---- ----
<S> <C> <C> <C>
Cash Flows from Operating Activities:
Net income $ 162,412 $ 157,976 $ 86,518
Loss on prepayment of debt 33,454
Depreciation of real estate 26,750 21,269 16,582
Amortization of goodwill 2,349 1,557 1,557
Shares issued for compensation 1,994 2,039 959
Other depreciation, amortization and
provision for losses (Note 4) 1,538 1,211 2,480
--------- --------- --------
Cash Flows from Operating Activities
Available for Distribution 195,043 184,052 141,550
Net change in other assets and liabilities (Note 2) (10,631) 4,499 8,447
--------- --------- --------
Net cash provided by operating activities 184,412 188,551 149,997
--------- --------- --------
Cash Flows from Financing Activities:
Proceeds from equity offerings 312,800 311,656
Proceeds from debt issuance 1,078,000 476,000 835,700
Repayment of bank notes payable (512,015) (370,000) (492,200)
Repayment of senior unsecured and
mortgage notes payable (309,300)
Debt prepayment charges (31,228)
Equity offering and debt issuance costs (5,896) (19,235) (21,962)
Principal payments on bonds and mortgages payable (5,098) (940) (6,727)
Distributions to shareholders (176,210) (162,632) (127,451)
Proceeds from warrant conversions and stock options 9,138 11,084 5,961
--------- --------- --------
Net cash provided by financing activities 387,919 247,077 164,449
--------- --------- --------
Cash Flows from Investing Activities:
Acquisition of real estate and development funding (292,607) (325,789) (94,187)
Investment in real estate mortgages
and development funding (299,861) (265,084) (259,162)
Prepayment proceeds and principal
payments on real estate mortgages 54,618 162,247 49,847
Proceeds from sale of real estate 6,173 4,701 7,800
Payment of merger related costs (16,979)
Cash acquired from Santa Anita merger 30,249
Working capital advances and acquisition of receivables, net
of repayments and collections (210) 284 (14,433)
Investment in equity securities (52,708) (13,509)
--------- --------- --------
Net cash used in investing activities (571,325) (437,150) (310,135)
--------- --------- --------
Net increase (decrease) in cash and cash
equivalents 1,006 (1,522) 4,311
Cash and cash equivalents at:
Beginning of year 42,726 44,248 39,937
--------- --------- --------
End of year $ 43,732 $ 42,726 $ 44,248
========= ========= ========
</TABLE>
The accompanying notes are an integral part of these financial statements
20
<PAGE>
MEDITRUST CORPORATION
CONSOLIDATED BALANCE SHEETS
<TABLE>
<CAPTION>
December 31,
-------------------------------
(In thousands) 1997 1996
---- ----
<S> <C> <C>
ASSETS
Real estate investments (Note 4) $2,935,772 $2,188,078
Cash and cash equivalents 24,059 42,726
Fees, interest and other receivables 26,859 20,178
Goodwill 162,408 6,845
Due from Meditrust Operating Company 18,490
Other assets, net (Note 5) 91,948 59,048
---------- ----------
Total assets $3,259,536 $2,316,875
========== ==========
LIABILITIES AND SHAREHOLDERS' EQUITY
Indebtedness (Note 8):
Notes payable, net $ 900,594 $ 494,790
Convertible debentures, net 234,000 280,813
Bank notes payable, net 179,527 24,114
Bond and mortgages payable, net 63,317 59,043
---------- ----------
Total indebtedness 1,377,438 858,760
Deferred revenue 7,705 9,716
Accounts payable, accrued expenses and other liabilities 82,153 63,458
---------- ----------
Total liabilities 1,467,296 931,934
---------- ----------
Shareholders' equity:
Shares of beneficial interest without par value; unlimited
shares authorized; 61,349 shares issued and outstanding,
at December 31, 1996 1,520,454
Preferred Stock, $.10 par value; 6,000 shares authorized; no shares
issued or outstanding
Series Common Stock, $.10 par value; 30,000 shares authorized; no
shares issued or outstanding
Common Stock, $.10 par value; 270,000 shares authorized;
89,433 shares issued and outstanding,
at December 31, 1997 8,943
Additional paid-in-capital 1,988,798
Distributions in excess of net income (192,373) (135,513)
---------- ----------
1,805,368 1,384,941
Note receivable - Meditrust Operating Company (13,128)
---------- ----------
Total shareholders' equity 1,792,240 1,384,941
---------- ----------
Total liabilities and shareholders' equity $3,259,536 $2,316,875
========== ==========
</TABLE>
The accompanying notes are an integral part of these financial statements
21
<PAGE>
MEDITRUST CORPORATION
CONSOLIDATED STATEMENTS OF INCOME
<TABLE>
<CAPTION>
For the years ended December 31,
-------------------------------------------------
<S> <C> <C> <C>
(In thousands, except per Share data) 1997 1996 1995
Revenue:
Rental $137,868 $109,119 $ 85,616
Interest 151,122 144,905 123,753
Rent from Meditrust Operating Company 740
Interest from Meditrust Operating Company 193
--------- -------- ---------
Total revenue 289,923 254,024 209,369
--------- -------- ---------
Expenses:
Interest 87,412 64,216 64,163
Depreciation and amortization 26,954 21,651 16,620
Amortization of goodwill 2,214 1,556 1,556
General and administrative 10,111 8,625 7,058
Rental property operating 210
Loss from unconsolidated joint venture 10
--------- -------- ---------
Total expenses 126,911 96,048 89,397
--------- -------- ---------
Income before extraordinary item 163,012 157,976 119,972
Extraordinary item:
Loss on prepayment of debt (Note 8) 33,454
--------- -------- ---------
Net income $163,012 $ 157,976 $ 86,518
========= ========= ==========
Basic earnings per Common Share (Notes 3 and 13):
Net income before extraordinary item $ 2.14 $ 2.21 $ 2.10
Extraordinary item:
Loss on prepayment of debt (Note 8) (0.59)
--------- -------- ---------
Net income $ 2.14 $ 2.21 $ 1.51
========= ========= ==========
Diluted earnings per Common Share (Notes 3 and 13):
Net income before extraordinary item $ 2.12 $ 2.20 $ 2.09
Extraordinary item:
Loss on prepayment of debt (Note 8) (0.58)
--------- -------- ---------
Net income $ 2.12 $ 2.20 $ 1.51
========= ========= ==========
Distributions declared per Common Share $ 2.38 $ 2.31 $ 2.25
========= ========= ==========
</TABLE>
The accompanying notes are an integral part of these financial statements
22
<PAGE>
MEDITRUST CORPORATION
CONSOLIDATED STATEMENTS OF CHANGES IN SHAREHOLDERS' EQUITY
For the Years Ended December 31, 1997, 1996 and 1995
<TABLE>
<CAPTION>
Additional Distributions
Shares of Beneficial Interest Paid-in in excess of
or Common Stock Capital net income
--------------- ---------- ----------
Shares Amount
------ ------
<S> <C> <C> <C> <C>
(In thousands)
Balance, December 31, 1994 47,606 $ 860,071 $ (89,924)
Proceeds from issuance of shares of beneficial
interest, net of offering costs of $16,703 12,316 294,953
Issuance of shares of beneficial interest for:
Conversion of debentures, net of
unamortized issue costs of $628 1,282 30,670
Employee compensation and stock options 290 6,918
Distributions paid (127,451)
Net income for the year ended December 31, 1995 86,518
------- ------------- ----------- -----------
Balance, December 31, 1995 61,494 1,192,612 (130,857)
Proceeds from issuance of shares of beneficial
interest, net of offering costs of $16,316 11,055 296,484
Issuance of shares of beneficial interest for:
Conversion of debentures, net of
unamortized issue costs of $259 644 15,707
Employee compensation and stock options 524 13,123
Distributions paid (162,632)
Net income for the year ended December 31, 1996 157,976
Change in market value of equity investment in
excess of cost 2,528
------- ------------- ------------ -----------
Balance, December 31, 1996 73,717 1,520,454 (135,513)
Distribution of MAC shares to Meditrust shareholders (43,662)
Effect of Merger with Santa Anita Realty 13,671 (1,511,715) $1,930,318
Issuance of shares of common stock for:
Conversion of debentures, net of
unamortized issue costs of $165 1,589 159 47,023
Employee compensation and stock options 456 45 10,416
Distributions paid (176,210)
Net income for the year ended December 31, 1997 163,012
Change in market value of equity investment in
excess of cost 1,041
======== ============ =========== ===========
Balance, December 31, 1997 89,433 $ 8,943 $1,988,798 $ (192,373)
======== ============ =========== ===========
</TABLE>
<TABLE>
<CAPTION>
Note
Receivable-
Operating Total
--------- -----
<S> <C> <C>
(In thousands)
Balance, December 31, 1994 $770,147
Proceeds from issuance of shares of beneficial
interest, net of offering costs of $16,703 294,953
Issuance of shares of beneficial interest for:
Conversion of debentures, net of
unamortized issue costs of $628 30,670
Employee compensation and stock options 6,918
Distributions paid (127,451)
Net income for the year ended December 31, 1995 86,518
--------- -----------
Balance, December 31, 1995 1,061,755
Proceeds from issuance of shares of beneficial
interest, net of offering costs of $16,316 296,484
Issuance of shares of beneficial interest for:
Conversion of debentures, net of
unamortized issue costs of $259 15,707
Employee compensation and stock options 13,123
Distributions paid (162,632)
Net income for the year ended December 31, 1996 157,976
Change in market value of equity investment in
excess of cost 2,528
--------- ----------
Balance, December 31, 1996 1,384,941
Distribution of MAC shares to Meditrust shareholders (43,662)
Effect of Merger with Santa Anita Realty $(13,128) 405,475
Issuance of shares of common stock for:
Conversion of debentures, net of
unamortized issue costs of $165 47,182
Employee compensation and stock options 10,461
Distributions paid (176,210)
Net income for the year ended December 31, 1997 163,012
Change in market value of equity investment in
excess of cost 1,041
========= ==========
Balance, December 31, 1997 $(13,128) $1,792,240
========= ==========
</TABLE>
The accompanying notes are an integral part of these financial statements
23
<PAGE>
MEDITRUST CORPORATION
CONSOLIDATED STATEMENTS OF CASH FLOWS
<TABLE>
<CAPTION>
December 31,
-----------------------------------
(In thousands) 1997 1996 1995
---- ---- ----
<S> <C> <C> <C>
Cash Flows from Operating Activities:
Net income $ 163,012 $ 157,976 $ 86,518
Loss on prepayment of debt 33,454
Depreciation of real estate 26,750 21,269 16,582
Amortization of goodwill 2,214 1,557 1,557
Shares issued for compensation 1,994 2,039 959
Other depreciation, amortization and
provision for losses (Note 4) 1,367 1,211 2,480
--------- ---------- ---------
Cash Flows from Operating Activities
Available for Distribution 195,337 184,052 141,550
Net change in other assets and liabilities (Note 2) (10,142) 4,499 8,447
--------- ---------- ---------
Net cash provided by operating activities 185,195 188,551 149,997
--------- ---------- ---------
Cash Flows from Financing Activities:
Proceeds from equity offerings 312,800 311,656
Proceeds from debt issuance 1,078,000 476,000 835,700
Repayment of bank notes payable (512,015) (370,000) (492,200)
Repayment of senior unsecured and
mortgage notes payable (309,300)
Debt prepayment charges (31,228)
Equity offering and debt issuance costs (5,896) (19,235) (21,962)
Intercompany borrowings (11,175)
Principal payments on bonds and mortgages payable (5,098) (940) (6,727)
Distributions to shareholders (176,210) (162,632) (127,451)
Proceeds from warrant conversions and stock options 9,092 11,084 5,961
--------- ---------- ---------
Net cash provided by financing activities 376,698 247,077 164,449
--------- ---------- ---------
Cash Flows from Investing Activities:
Acquisition of real estate and development funding (292,607) (325,789) (94,187)
Investment in real estate mortgages
and development funding (299,861) (265,084) (259,162)
Prepayment proceeds and principal
payments on real estate mortgages 54,618 162,247 49,847
Proceeds from sale of real estate 6,173 4,701 7,800
Payment of merger related costs (16,979)
Cash acquired from Santa Anita merger 25,944
Working capital advances and acquisition of receivables,
net of repayments and collections (134) 284 (14,433)
Investment in MAC (43,662)
Investment in equity securities (14,052) (13,509)
--------- ---------- ---------
Net cash used in investing activities (580,560) (437,150) (310,135)
--------- ---------- ---------
Net increase (decrease) in cash and cash
equivalents (18,667) (1,522) 4,311
Cash and cash equivalents at:
Beginning of year 42,726 44,248 39,937
========= ========== =========
End of year $ 24,059 $ 42,726 $ 44,248
========= ========== =========
</TABLE>
The accompanying notes are an integral part of these financial statements
24
<PAGE>
MEDITRUST OPERATING COMPANY
CONSOLIDATED BALANCE SHEET
<TABLE>
<CAPTION>
December 31,
(In thousands) 1997
----
ASSETS
<S> <C>
Cash and cash equivalents $ 19,673
Fees, interest and other receivables 2,580
Other current assets, net 3,078
--------
Total current assets 25,331
--------
Investment in common stock of Meditrust Corporation 37,581
Goodwill 32,485
Property, plant and equipment,
less accumulated depreciation of $171 10,529
Artwork 14,500
--------
Total assets $120,426
========
LIABILITIES AND SHAREHOLDERS' EQUITY
Current liabilities:
Accounts payable and accrued expenses $14,180
Payable to owners, trainers and breeders 5,939
Deferred compensation 3,977
Accrued payroll 3,491
Other liabilities 1,419
Due to Meditrust Corporation 18,490
--------
Total current liabilities 47,496
--------
Note payable to Meditrust Corporation 13,128
Deferred revenue 1,349
Deferred income taxes 501
--------
Total liabilities 62,474
--------
Shareholders' equity:
Preferred Stock, $.10 par value; 6,000 shares authorized;
no shares issued or outstanding
Series Common Stock, $.10 par value; 30,000 shares authorized;
no shares issued or outstanding
Common Stock, $.10 par value; 270,000 shares authorized;
88,128 shares issued and outstanding, at December 31, 1997 8,813
Additional paid-in-capital 49,739
Retained earnings (deficit) (600)
---------
Total shareholders' equity 57,952
---------
Total liabilities and shareholders' equity $120,426
========
</TABLE>
The accompanying notes are an integral part of these financial statements
25
<PAGE>
MEDITRUST OPERATING COMPANY
CONSOLIDATED STATEMENT OF OPERATIONS
For the Initial
Period Ended
December 31,
(In thousands, except per Share data) 1997
-------------
Revenue:
Horse Racing:
Wagering commissions $2,940
Admission related 2,288
-------
Total Horse Racing 5,228
Interest 70
Other 67
-------
Total revenue 5,365
-------
Expenses:
Horse Racing operations 4,263
Depreciation and amortization 171
Amortization of goodwill 135
Interest and other 16
Interest to Meditrust Corporation 193
General and administrative 447
Rent to Meditrust Corporation 740
-------
Total expenses 5,965
-------
Loss before income taxes (600)
Provision for income taxes --
-------
Net loss $ (600)
=======
Basic earnings per Common Share (Note 13): $(0.01)
=======
Diluted earnings per Common Share (Note 13): $(0.01)
=======
The accompanying notes are an integral part of these financial statements
26
<PAGE>
MEDITRUST OPERATING COMPANY
CONSOLIDATED STATEMENT OF CHANGES IN SHAREHOLDERS' EQUITY
For the Initial Period Ended December 31, 1997
<TABLE>
<CAPTION>
Additional
Shares of Beneficial Interest Paid-in Retained
or Common Stock Capital Earnings Total
--------------- ------- -------- -----
(In thousands) Shares Amount
------ ------
<S> <C> <C> <C> <C> <C>
Proceeds from issuance of shares of beneficial
interest 74,161 $43,662 $43,662
Effect of Merger with Santa Anita Operating
Company 12,366 (35,009) $49,035 14,026
Issuance of shares of Common Stock for:
Employee compensation and stock options 175 17 36 53
Conversion of debentures, net of
unamortized issue costs of $3 1,426 143 668 811
Net loss for the initial period ended
December 31, 1997 $(600) (600)
------- -------- ------- ----- -------
Balance, December 31, 1997 88,128 $ 8,813 $49,739 $(600) $57,952
======= ======== ======= ====== =======
</TABLE>
The accompanying notes are an integral part of these financial statements
27
<PAGE>
MEDITRUST OPERATING COMPANY
CONSOLIDATED STATEMENT OF CASH FLOWS
For the Initial
Period Ended
December 31,
(In thousands) 1997
----
Cash Flows from Operating Activities:
Net loss $ (600)
Amortization of goodwill 135
Other depreciation and amortization 171
----------
Cash Flows from Operating Activities
Available for Distribution (294)
Net change in other assets and liabilities (Note 2) (489)
----------
Net cash used in operating activities (783)
----------
Cash Flows from Financing Activities:
Proceeds from issuance of common shares 43,662
Proceeds from intercompany borrowings 11,175
Proceeds from stock options 46
----------
Net cash provided by financing activities 54,883
----------
Cash Flows from Investing Activities:
Cash acquired from Santa Anita merger 4,305
Collection of receivables and
repayment of working capital advances (76)
Investment in equity securities (38,656)
----------
Net cash used in investing activities (34,427)
----------
Net increase in cash and cash equivalents 19,673
Cash and cash equivalents at:
At inception
----------
End of year $ 19,673
==========
The accompanying notes are an integral part of these financial statements
28
<PAGE>
MEDITRUST CORPORATION AND MEDITRUST OPERATING COMPANY
AND SUBSIDIARIES
NOTES TO COMBINED CONSOLIDATED FINANCIAL STATEMENTS
1. Summary of Significant Accounting Policies
Basis of Presentation
On September 26, 1997, Meditrust funded $43,662,000 to create Meditrust
Acquisition Company ("MAC"). On October 3, 1997, Meditrust paid a stock dividend
to shareholders of record on that date of one share of beneficial interest,
without par value, of its wholly-owned subsidiary MAC, a Massachusetts business
trust, for each share of beneficial interest of Meditrust. MAC was organized to
accomplish the merger described below and has conducted no business other than
in connection with the merger prior to November 5, 1997.
On November 5, 1997, Meditrust merged with Santa Anita Realty
Enterprises, Inc., with Santa Anita Realty Enterprises, Inc. as the surviving
corporation, and Meditrust Acquisition Company merged with Santa Anita Operating
Company, with Santa Anita Operating Company as the surviving corporation
(hereafter referred to as the "Merger" or "Mergers"). Upon completion of the
Mergers, Santa Anita Realty Enterprises, Inc. changed its corporate name to
"Meditrust Corporation" and Santa Anita Operating Company changed its corporate
name to "Meditrust Operating Company." The Mergers were accounted for as reverse
acquisitions whereby Meditrust and Meditrust Acquisition Company were treated as
the acquirers for accounting purposes. Accordingly, the financial history is
that of Meditrust and Meditrust Acquisition Company prior to the Mergers.
Meditrust Corporation ("Realty") and Meditrust Operating Company and
subsidiaries ("Operating Company") (collectively the "Companies" or "The
Meditrust Companies") are two separate companies, the stocks of which trade as a
single unit under a stock pairing arrangement ("Paired-Share") on the New York
Stock Exchange.
Realty is a self administered real estate investment trust ("REIT") under
the Internal Revenue Code of 1986 as amended and invests primarily in health
care facilities, including nursing homes, assisted living facilities, medical
office buildings, rehabilitation hospitals and other health care related
facilities. These facilities are located throughout the United States and are
operated by regional and national health care providers. Realty also invests in
other entities which invest in similar facilities abroad.
Operating Company is currently engaged in thoroughbred horse racing. The
thoroughbred horse racing operation is conducted by a wholly-owned subsidiary
of Operating Company, Los Angeles Turf Club, Incorporated ("LATC"), which leases
the Santa Anita Racetrack from Realty.
Separate financial statements have been presented for Realty and for
Operating Company. Combined Realty and Operating Company financial statements
have been presented as The Meditrust Companies. The Meditrust Companies and
Realty use an unclassified balance sheet presentation.
The consolidated financial statements of Realty and Operating Company
include the accounts of the respective entity and its majority-owned
partnerships after the elimination of all significant intercompany accounts and
transactions.
29
<PAGE>
MEDITRUST CORPORATION AND MEDITRUST OPERATING COMPANY
AND SUBSIDIARIES
NOTES TO COMBINED CONSOLIDATED FINANCIAL STATEMENTS
1. Summary of Significant Accounting Policies, Continued
Basis of Presentation, Continued
The separate net income (loss) and related per share amounts of Realty
and Operating Company cannot usually be added together to total the combined net
income (loss) and related per share amounts for The Meditrust Companies because
of adjustments and eliminations arising from inter-entity transactions. All
significant intercompany and inter-entity balances and transactions have been
eliminated in combination.
The preparation of financial statements in conformity with generally
accepted accounting principles requires management to make estimates and
assumptions that affect the amounts reported in the financial statements and
accompanying notes. Actual results could differ from these estimates.
The Companies' more significant accounting policies follow:
Real Estate Investments
Land, buildings and improvements are stated at cost. Depreciation is
provided for, on a straight-line basis over 20 to 40 years, the expected useful
lives of the buildings and major improvements. Pursuant to Statement of
Financial Accounting Standards Opinion No. 121, "Accounting for the Impairment
of Long-Lived Assets and for Long-Lived Assets to be Disposed Of"("SFAS 121"),
impairment losses are recorded on long-lived assets used in operation, when
events and circumstances indicate that the assets might be impaired and the
estimated undiscounted cash flows to be generated by those assets are less than
the carrying amount of those assets. Upon determination that an impairment has
occurred, those assets shall be reduced to fair value.
Capitalized Acquisition and Interest Costs
Realty capitalizes preacquisition costs, development costs and other
indirect costs in accordance with Financial Accounting Standard No. 67,
"Accounting for Costs and Initial Rental Operations of Real Estate Projects."
Additionally, Realty capitalizes the interest cost associated with
developing new facilities. The amount capitalized is based upon a rate of
interest which approximates the Companies' cost of financing and is reflected
as rental income.
Investments in Unconsolidated Joint Ventures
Investments in unconsolidated joint ventures are accounted for using the
equity method.
30
<PAGE>
MEDITRUST CORPORATION AND MEDITRUST OPERATING COMPANY
AND SUBSIDIARIES
NOTES TO COMBINED CONSOLIDATED FINANCIAL STATEMENTS
1. Summary of Significant Accounting Policies, Continued
Investments in Equity Securities
Pursuant to Statement of Financial Accounting Standard No. 115,
"Accounting for Certain Investments in Debt and Equity Securities," the
Companies' investments in equity securities have been classified as
available-for-sale. Accordingly, these investments are recorded at current
market value. The difference between market value and cost (unrealized holding
gains and losses) is recorded in shareholders' equity.
Cash and Cash Equivalents
Cash and cash equivalents consist of certificates of deposit and other
investments with less than 90-day maturities at the time of purchase and are
stated at cost which approximates fair market value.
Other Assets
Other assets include cash restricted for specified disbursement in
accordance with certain facility acquisitions and mortgage financings and the
corresponding liabilities are reflected in accrued expenses and other
liabilities. Other assets also include investments in equity securities,
facilities' operating receivables, and working capital advances.
Goodwill
Goodwill represents the excess of cost over the fair value of assets
acquired and is being amortized using the straight-line method over periods of
generally up to 40 years. The Companies plan to assess the recoverability of
goodwill whenever adverse events or changes in circumstances or business climate
indicate that the expected future cash flows (undiscounted and without interest
charges) for individual business units may not be sufficient to support recorded
goodwill. If undiscounted cash flows are not sufficient to support the recorded
asset, an impairment would be recognized to reduce the carrying value of the
goodwill based on the expected discounted cash flows of the business unit.
Expected cash flows would be discounted at a rate commensurate with the risk
involved.
Goodwill associated with the Merger primarily relates to the value of the
Paired-Share structure and, due to the permanent nature of the structure, is
being amortized over a forty-year period (see Note 16, "Subsequent Events").
Goodwill also includes amounts associated with the acquisition of Realty's
previous investment advisor and is being amortized on a straight-line basis over
a ten-year period.
31
<PAGE>
MEDITRUST CORPORATION AND MEDITRUST OPERATING COMPANY
AND SUBSIDIARIES
NOTES TO COMBINED CONSOLIDATED FINANCIAL STATEMENTS
Property, Plant and Equipment
Depreciation of property, plant and equipment and capital lease
obligations is provided primarily on the straight-line method generally over the
following estimated useful lives:
Buildings and improvements 20 to 40 years
Machinery and other equipment 5 to 15 years
Leasehold improvements 5 to 32 years
Expenditures which materially increase property lives are capitalized.
The cost of maintenance and repairs is charged to expense as incurred. When
depreciable property is retired or disposed of, the related cost and accumulated
depreciation is removed from the accounts and any gain or loss is reflected in
current operations.
Debt Issuance Costs
Debt issuance costs have been deferred and are being amortized using the
effective interest or straight line method over the term of the related
borrowings.
Deferred Revenue
Realty's deferred revenue consists principally of fees which are being
amortized over the term of the related investment.
Operating Company's deferred revenue consists of prepaid admission
tickets and parking, which are recognized as income ratably over the period of
the related race meet. Also, deferred revenue includes prepaid rent which is
recognized over the remaining term of the lease.
Shareholders' Equity
The outstanding shares of Realty common stock and Operating Company
common stock are only transferable and tradable in combination as a paired unit
consisting of one share of Realty common stock and one share of Operating
Company common stock.
Realty's Revenue Recognition
Realty's rental income from operating leases is recognized as earned over
the life of the lease agreements. Interest income on real estate mortgages is
recognized on the accrual basis.
32
<PAGE>
MEDITRUST CORPORATION AND MEDITRUST OPERATING COMPANY
AND SUBSIDIARIES
NOTES TO COMBINED CONSOLIDATED FINANCIAL STATEMENTS
Operating Company's Revenue and Costs
Operating Company records operating revenue associated with thoroughbred
horse racing at Santa Anita Racetrack on a daily basis, except for season
admissions which are recorded ratably over the racing season. Costs and expenses
associated with thoroughbred horse racing revenues are charged against income in
those interim periods in which the thoroughbred horse racing revenue is
recognized. Other costs and expenses are recognized as they occur throughout the
year. The rental fee paid by Operating Company to Realty is recognized by both
Realty and Operating Company as it is earned.
Operating Company's horse racing revenue and direct operating costs are
shown net of state and local taxes, stakes, purses and awards.
Earnings Per Share
The Companies have adopted the standards for calculating earnings per
share ("EPS") pursuant to Statement of Financial Accounting Standards No. 128
("SFAS 128") which supersedes APB Opinion No. 15, "Earnings Per Share" ("Opinion
15") and replaces the presentation of primary EPS with a presentation of basic
EPS. Basic EPS is computed by dividing income available to common shareholders
by the weighted average number of common shares outstanding during the year of
computation. Diluted EPS is computed similarly to fully diluted EPS pursuant to
Opinion 15, with some modifications and is not materially different for the
three years ended December 31, 1997, 1996 and 1995. The combined consolidated
financial statements and consolidated financial statements for the years ended
December 31, 1996 and 1995 have been restated to conform to SFAS 128.
Stock Based Compensation
During 1996, the Companies adopted Statement of Financial Accounting
Standard No. 123 ("SFAS 123") which provides companies an alternative to
accounting for stock-based compensation as prescribed under Accounting
Principles Board Opinion No. 25 ("APB 25"). SFAS 123 encourages, but does not
require companies to recognize expense for stock-based awards based on their
fair value at date of grant. SFAS 123 allows companies to follow existing
accounting rules (intrinsic value method under APB 25) provided that pro-forma
disclosures are made of what net income and earnings per share would have been
had the new fair value method been used. The Companies have elected to adopt the
disclosure requirements of SFAS 123, but will continue to account for
stock-based compensation under APB 25.
Fair Value of Financial Instruments
Management has estimated the fair value of its financial instruments
using available market information and appropriate valuation methodologies.
Considerable judgment is required in interpreting market data to develop
estimates of fair value. Accordingly, the estimated values for Realty and
Operating Company as of December 31, 1997 and 1996 are not necessarily
indicative of the amounts that could be realized in current market exchanges.
33
<PAGE>
MEDITRUST CORPORATION AND MEDITRUST OPERATING COMPANY
AND SUBSIDIARIES
NOTES TO COMBINED CONSOLIDATED FINANCIAL STATEMENTS
1. Summary of Significant Accounting Policies, Continued
Income Taxes
Realty has elected to be taxed as a REIT under the Internal Revenue Code
of 1986, as amended, and believes it has met all the requirements for
qualification as such. Accordingly, Realty will not be subject to federal income
taxes on amounts distributed to shareholders, provided it distributes annually
at least 95% of its REIT taxable income and meets certain other requirements for
qualifying as a REIT. Therefore, no provision for federal income taxes is
believed necessary in the financial statements of Realty.
Concentration of Credit Risk
As of December 31, 1997, long-term care facilities comprised 51% of the
Companies' real estate investments and were located in 33 states. The Companies'
investments with the three largest operators totaled approximately 39%. No
single operator has a real estate investment balance which exceeds 20% of total
real estate investments, including credit enhancements.
Reclassification
Certain reclassifications have been made to the 1996 presentation to
conform to the 1997 presentation.
2. Supplemental Cash Flow Information
Details of the net change in other assets and liabilities for the
combined companies (excluding noncash items, deferred income recognized in
excess of cash received and changes in restricted cash and related liabilities)
follow:
<TABLE>
<CAPTION>
For the year ended December 31,
-------------------------------
1997 1996 1995
---- ---- ----
<S> <C> <C> <C>
(In thousands)
Change in fees, interest and other receivables $(10,581) $(6,956) $(3,360)
Change in other assets (1,657) (2,834) (3,838)
Change in deferred income 3,851 5,669 4,331
Change in accrued expenses and
other liabilities (2,383) 8,620 11,314
Change in deferred income taxes 139
-------- ------- ---------
$(10,631) $ 4,499 $ 8,447
======== ======= ========
</TABLE>
Details of interest and income taxes paid as well as non-cash investing
and financing transactions for each entity follow:
<TABLE>
<CAPTION>
The Meditrust Companies
For the year ended December 31,
---------------------------------------
(In thousands) 1997 1996 1995
---- ---- ----
<S> <C> <C> <C>
Supplemental Disclosure of Cash Flow Information:
Interest paid during the period $ 75,936 $ 56,666 $ 55,544
Non-cash investing and financing transactions:
Value of land and buildings (sold) acquired 36,486 (34,386)
Accumulated depreciation of land
and buildings sold 389 3,486
Increase (reduction) of real estate mortgages
net of participation reduction 256 (29,642) 37,872
Change in market value of equity investment
in excess of cost (Note 5) 1,041 2,528
Value of Shares issued for conversion of debentures 48,161 15,966 31,298
In connection with the Santa Anita merger:
Fair value of assets acquired 234,375
Liabilities assumed 46,490
Excess purchase consideration over estimated
fair market value of assets acquired 176,922
Value of the issuance of Paired Common Shares 395,056
</TABLE>
<TABLE>
<CAPTION>
Meditrust Corporation
For the year ended December 31,
-----------------------------------
(In thousands) 1997 1996 1995
---- ---- ----
<S> <C> <C> <C>
Supplemental Disclosure of Cash Flow Information:
Interest paid during the period $75,936 $ 56,666 $ 55,544
Non-cash investing and financing transactions:
Value of land and buildings (sold) acquired 36,486 (34,386)
Accumulated depreciation of land
and buildings sold 389 3,486
Increase (reduction) of real estate mortgages
net of participation reduction 256 (29,642) 37,872
Change in market value of equity investment
in excess of cost (Note 5) 1,041 2,528
Value of Shares issued for conversion of debentures 47,347 15,966 31,298
Stock dividend of MAC shares 43,662
In connection with the Santa Anita merger:
Fair value of assets acquired 252,626
Liabilities assumed 21,830
Excess purchase consideration over estimated
fair market value of assets acquired 148,735
Value of the issuance of common shares 405,475
</TABLE>
Meditrust Operating Company
Supplemental Disclosure of Cash Flow Information:
For the Initial
Period Ended
December 31,
1997
(In thousands) ----
Interest paid during the period $ -
Income taxes paid during the period -
Non-cash investing and financing transactions:
Value of Shares issued for conversion of debentures 814
In connection with the Santa Anita merger:
Fair value of assets acquired 19,322
Liabilities assumed 24,660
Excess purchase consideration over estimated 28,187
fair market value of assets acquired
Value of the issuance of common shares 27,154
34
<PAGE>
MEDITRUST CORPORATION AND MEDITRUST OPERATING COMPANY
AND SUBSIDIARIES
NOTES TO COMBINED CONSOLIDATED FINANCIAL STATEMENTS
3. Santa Anita Companies Merger
On November 5, 1997, Meditrust merged into Santa Anita Realty
Enterprises, Inc. and MAC merged into Santa Anita Operating Company. As part of
the Merger, each share of beneficial interest of Meditrust and MAC was exchanged
for 1.2016 Paired Common Shares ("Shares"). Upon completion of the Mergers,
Santa Anita Realty Enterprises, Inc. changed its corporate name to "Meditrust
Corporation," and Santa Anita Operating Company changed its corporate name to
"Meditrust Operating Company". The Mergers were accounted for as reverse
acquisitions whereby Meditrust and MAC were treated as the acquirers for
accounting purposes. All Share and per Share amounts have been retroactively
adjusted to reflect the 1.2016 exchange of shares of beneficial interest for
Paired Common Shares.
Accordingly, the operations of the Santa Anita Realty Enterprises, Inc.
and Santa Anita Operating Company are included in the combined and consolidated
financial statements since the Merger date. The aggregate purchase price of
approximately $412,000,000, which includes costs of the Merger, has been
allocated among the assets of the Santa Anita Companies, based on their
respective fair market values. The excess of the purchase price, including costs
of the Merger, over the fair value of the net assets acquired approximated
$194,000,000 and is being amortized over forty years.
The following unaudited pro forma condensed combined consolidated results
of operations of Meditrust Corporation and Meditrust Operating Company have been
prepared as if the Merger had occurred at the beginning of fiscal 1996:
For the Year Ended December 31,
-------------------------------
1997 1996
---- ----
(In thousands, except per Share amounts)
Revenues $ 369,730 $331,249
Net Income 158,865 150,849
Net Income Per Share 1.84 1.80
Weighted Average Shares
Outstanding 86,375 83,811
The pro forma condensed combined consolidated results do not purport to
be indicative of results that would have occurred had the Merger been in effect
for the periods presented, nor do they purport to be indicative of the results
that will be obtained in the future.
35
<PAGE>
MEDITRUST CORPORATION AND MEDITRUST OPERATING COMPANY
AND SUBSIDIARIES
NOTES TO COMBINED CONSOLIDATED FINANCIAL STATEMENTS
4. Real Estate Investments:
The following is a summary of real estate investments:
<TABLE>
<CAPTION>
December 31,
------------
1997 1996
---- ----
<S> <C> <C>
(In thousands)
Land $ 249,852 $ 68,098
Buildings and improvements, net of accumulated depreciation
of $124,582 and $98,082 1,223,255 938,162
Real estate mortgages and loans receivable 1,432,825 1,181,818
Investment in unconsolidated joint venture, net of accumulated
depreciation of $250 29,840
----------- ----------
$2,935,772 $2,188,078
========== ==========
</TABLE>
During 1997, Realty acquired 59 assisted living facilities, one long-term
care facility and one medical office building for $188,047,000. In addition,
during 1997, Realty provided net funding of $43,610,000 for the construction of
18 assisted living facilities and $2,100,000 for additions to four long-term
care facilities and one medical office building already in the portfolio. Realty
also provided net funding of $58,850,000 for ongoing construction of facilities
already in the portfolio prior to 1997.
Also during 1997, Realty provided permanent mortgage financing of
$60,637,000 for four long-term care facilities, 20 assisted living facilities,
one retirement living facility and one medical office building. Realty also
provided $13,308,000 in additions to permanent mortgages already in the
portfolio.
Realty commenced new development funding of $156,377,000 relating to six
long-term care facilities, seven medical office buildings and eight assisted
living facilities. Realty also provided $69,539,000 for ongoing construction of
facilities already in the portfolio.
As a result of the merger with Santa Anita Realty Enterprises, Inc.,
Realty acquired and recorded assets using appraised values, including a
racetrack valued at $117,000,000, a 50% ownership in a joint venture holding a
fashion mall with a value to Realty of $30,000,000 which is located on land
owned by Realty valued at $11,500,000, a medical office building valued at
$14,128,000 and a retail mall valued at $6,173,000. In addition, Realty acquired
land held for development of an entertainment center valued at $45,223,000, land
held for future development valued at approximately $13,330,000 and real estate
loans receivable totaling $5,477,000.
In December 1997, Realty received $6,173,000 from the sale of a retail
mall in California. There was no gain or loss realized on the sale.
During 1997, Realty received principal payments on real estate mortgages
of $54,618,000.
36
<PAGE>
MEDITRUST CORPORATION AND MEDITRUST OPERATING COMPANY
AND SUBSIDIARIES
NOTES TO COMBINED CONSOLIDATED FINANCIAL STATEMENTS
4. Real Estate Investments, Continued
Realty's real estate property and mortgage agreements generally require
payment of percentage, supplemental and/or additional rent or interest during
the lease or loan term. For the years ended December 31, 1997, 1996 and 1995,
payments received from leases and mortgages amounted to $12,065,000, $11,409,000
and $9,106,000, respectively.
From time to time, Realty enters into transactions with related
parties. As of December 31, 1997, Realty had total commitments of
$386,373,000 of which $283,983,000 were funded to entities in which the
Companies' Chairman and Chief Executive Officer owned or was expected to own a
controlling equity interest or a minority interest. During 1997 and 1996, Realty
recognized interest income of $16,490,000 and $8,047,000 and rental
income of $5,174,000 and $2,821,000 from investments with these entities,
respectively. Realty expects to enter into additional transactions with
related parties in the future. All of the terms and conditions of such
transactions are subject to approval by the independent Directors of Realty.
Minority interest in partnerships relating to Realty's investments in
seven rehabilitation facilities is $2,071,000 and $2,128,000 as of December 31,
1997 and 1996, respectively, and is included in accrued expenses and other
liabilities in the consolidated financial statements. Realty has a 94% equity
interest in these partnerships.
At December 31, 1997, Realty was committed to provide additional
financing of approximately $232,160,000 relating to 13 medical office buildings,
eight long-term care facilities, and 38 assisted living facilities currently
under construction and additions to existing facilities in the portfolio.
Realty's 50% investment in the joint venture which owns the Santa Anita
Fashion Park in Arcadia, California, is accounted for using the equity method.
The Anita Associates partnership was formed to develop and operate Santa Anita
Fashion Park in Arcadia, California. Combined condensed financial information
(unaudited) for Anita Associates for the period November 5, 1997 to December 31,
1997, showed assets of $53,155,000, liabilities of $61,338,000 and results of
operations of $480,000. As a result of the Merger with Santa Anita Realty
Enterprises, Inc. the investment in Anita Associates is carried at $29,840,000.
The excess of the carrying value over the underlying equity and net assets of
the joint venture is being depreciated over 20 years.
5. Other Assets
On July 25, 1996, Realty invested approximately $13,509,000 in exchange
for 7,936,000 shares of common stock, representing a 19.99% interest in Nursing
Home Properties Plc ("NHP Plc"), a property investment group that specializes in
the financing, through sale and leaseback transactions, of nursing homes located
in the United Kingdom. On December 19, 1997, Realty purchased an additional
6,349,000 shares of NHP Plc common stock for $13,473,000 in order to maintain
its investment at 19.99%. Realty does not have the right to vote more than 9.99%
of the shares of NHP Plc.
37
<PAGE>
MEDITRUST CORPORATION AND MEDITRUST OPERATING COMPANY
AND SUBSIDIARIES
NOTES TO COMBINED CONSOLIDATED FINANCIAL STATEMENTS
5. Other Assets, Continued
As of December 31, 1997, the market value of this investment was
$30,551,000 and is included in other assets in the accompanying balance sheet.
The resulting difference between the current market value and cost, $3,569,000,
is included in shareholders' equity in the accompanying balance sheet.
Realty provides reserves against its assets on a periodic basis. As of
December 31, 1997 and 1996 the valuation allowance aggregated $16,962,000 and
$9,182,000, respectively.
6. Shares of Beneficial Interest/Common Shares
Distributions paid to shareholders are determined by Realty's Board
of Directors based on an analysis of cash flows from operating activities. Cash
flows from operating activities available for distribution differ from net
income primarily due to depreciation and amortization expense, a noncash item.
For 1995, the difference included the extraordinary loss on prepayment of debt.
Distributions in excess of net income as reflected on Realty's and the
Companies' consolidated balance sheets are primarily a result of an accumulation
of this difference. All Shares participate equally in distributions and in net
assets available for distribution to shareholders on liquidation or termination
of Realty. The Directors of Realty have the authority to affect certain Share
redemptions or prohibit the transfer of Shares under certain circumstances.
Total distributions to shareholders during the years ended December 31,
1997, 1996, and 1995 included a return of capital per Share of 31.7%, 5.25%, and
30.7%, respectively. The 1996 and 1995 distributions also include long-term
capital gain distributions of .23% and 10.56% per Share, respectively.
7. Fair Value of Financial Instruments
Fair value estimates are subjective in nature and are dependent on a
number of significant assumptions associated with each financial instrument or
group of financial instruments. Because of a variety of permitted calculations
and assumptions regarding estimates of future cash flows, risks, discount rates
and relevant comparable market information, reasonable comparisons of the
Companies' fair value information with other companies cannot necessarily be
made.
The following methods and assumptions were used for real estate mortgages
and long term indebtedness to estimate the fair value of financial instruments
for which it is practicable to estimate value:
The fair value of real estate mortgages has been estimated by discounting
future cash flows using current interest rates at which similar loans would be
made to borrowers with similar credit ratings and for the same remaining
maturities. The fair value of real estate mortgages amounted to approximately
$1,429,077,000 and $1,203,000,000 as of December 31, 1997 and 1996,
respectively.
The quoted market price for the Companies' publicly traded convertible
debentures and rates currently available to the Companies for debt with similar
terms and remaining maturities were used to estimate fair value of existing
debt. The fair value of the Companies' indebtedness amounted to approximately
$1,434,412,000 and $911,000,000 as of December 31, 1997 and 1996, respectively.
38
<PAGE>
MEDITRUST CORPORATION AND MEDITRUST OPERATING COMPANY
AND SUBSIDIARIES
NOTES TO COMBINED CONSOLIDATED FINANCIAL STATEMENTS
8. Indebtedness
Indebtedness at December 31, 1997 and 1996 is as follows (in thousands,
except per Share amounts):
<TABLE>
<CAPTION>
Notes payable, net: 1997 1996
---- ----
<S> <C> <C>
Principal payments aggregating $118,500 due from
August 1999 to August 2015, bearing interest at rates
between 7.25% and 8.625% $ 117,804 $ 117,661
Principal payments aggregating $125,000 due in July 2000,
bearing interest at 7.375% 124,370 124,070
Principal payments aggregating $80,000 due in July 2001,
bearing interest at 7.6% 79,464 79,404
Principal payments aggregating $160,000 due in August 2007,
bearing interest at 7% 157,003 -
Principal payments aggregating $100,000 due in August 2002,
bearing interest at LIBOR plus .45% 99,322 -
Principal payments aggregating $150,000 due in August 2011,
bearing interest at 7.114% 148,759 -
Principal payments aggregating $175,000 due in September
2026, (redeemable September 2003 at the option of the note
holder), bearing interest at 7.82% 173,872 173,655
---------- ---------
900,594 494,790
---------- ---------
Convertible debentures, net:
7% interest, convertible at $25.487 per Share, due March 1998 5,037 8,122
6-7/8% interest, convertible at $30.896 per Share, due
November 1998 43,553 85,399
8.54% interest, convertible at $27.15 per Share,
due July 2000 42,334 42,664
7-1/2% interest, convertible at $30.11 per Share, due March 2001 88,951 88,875
9% interest, convertible at $22.47 per Share, due January 2002 3,741 4,886
8.56% interest, convertible at $27.15 per Share due July 2002 50,384 50,867
---------- ---------
234,000 280,813
---------- ---------
Bank notes payable, net:
Revolving credit agreement expiring September 23, 1999 179,527 24,114
---------- ---------
Bonds and mortgages payable, net:
Mortgage notes, interest ranging from 7.9% to 12.2%, monthly principal and
interest payments ranging from $7 to $78 and maturing from February 1998
through March 2033, collateralized by thirteen facilities 59,962 55,623
Manatee County, Florida Industrial Revenue Bonds, Series 1983, serial
payments ranging from $45 to $90 due in 1995 through 2000 and $345 due in
December 2003 and $2,770 due in December 2013, interest ranging from
12.0% to 13.5%, collateralized by one facility 3,355 3,420
---------- ---------
63,317 59,043
---------- ---------
Total indebtedness $1,377,438 $ 858,760
========== =========
</TABLE>
39
<PAGE>
MEDITRUST CORPORATION AND MEDITRUST OPERATING COMPANY
AND SUBSIDIARIES
NOTES TO COMBINED CONSOLIDATED FINANCIAL STATEMENTS
8. Indebtedness, Continued
Notes payable
On August 7, 1997, Realty completed the sale of $160,000,000 of 7% notes
due August 15, 2007. Realty also completed the sale of $100,000,000 in notes due
August 15, 2002 bearing interest at LIBOR plus .45%. Such interest is subject to
reset quarterly during the first year of the loan. Subsequent to the first year
of the loan, the character and duration of the interest rate will be determined
periodically by Realty and the underwriter. Realty also completed the sale of
$150,000,000 of 7.114% notes due August 15, 2011. The notes were sold to a trust
from which exercisable put option securities due August 15, 2004, each
representing a fractional undivided beneficial interest in the trust, were
issued. The trust has entered a call option pursuant to which the callholder has
the right to purchase the notes from the trust on August 15, 2004 at par value.
The trust also has a put option, which it is required to exercise if the
callholder does not exercise the call option, pursuant to which Realty must
repurchase the notes at par value on August 15, 2004. A portion of the net
proceeds from the sale of the notes described above was used to repay the
outstanding balance on the unsecured revolving line of credit and other
unsecured short-term borrowings.
Convertible Debentures
The 9% convertible debentures issued in April 1992 are subject to
redemption by the Companies on or after April 23, 1995 at 100% of the principal
amount plus accrued interest. During the year ended December 31, 1997,
$1,190,000 of debentures were converted into 52,949 Shares. During the year
ended December 31, 1996, $3,416,000 of debentures were converted into 152,011
Shares.
The 7% debentures issued in February 1993 are subject to redemption by
the Companies on or after March 1, 1996 at 100% of the principal amount plus
accrued interest. During the year ended December 31, 1997, $3,095,000 of
debentures were converted into 111,306 Shares. During the year ended December
31, 1996, $12,550,000 of debentures were converted into 492,400 Shares.
The 6-7/8% debentures issued in November 1993 are subject to redemption
by the Companies at 100% of the principal amount plus accrued interest. During
the year ended December 31, 1997 $42,433,000 of debentures were converted into
1,373,394 Shares.
The 7-1/2% debentures issued in March 1994 are subject to redemption by
the Companies at 100% of the principal amount plus accrued interest. During the
year ended December 31, 1997 $443,000 of debentures were converted into 14,706
Shares.
The 8.54% debentures issued in July 1995 are subject to redemption by the
Companies at 100% of the principal amount plus accrued interest. During the year
ended December 31, 1997 $1,000,000 of debentures were converted into 36,830
Shares.
The 8.56% debentures issued in July 1995 are subject to redemption by the
Companies at 100% of the principal amount plus accrued interest to the extent
necessary to preserve Realty's status as a REIT.
40
<PAGE>
MEDITRUST CORPORATION AND MEDITRUST OPERATING COMPANY
AND SUBSIDIARIES
NOTES TO COMBINED CONSOLIDATED FINANCIAL STATEMENTS
8. Indebtedness, Continued
Bank Notes Payable
Realty has unsecured revolving lines of credit expiring September 23,
1999 in the amount of $365,000,000, of which $181,000,000 was available at
December 31, 1997, bearing interest at the lender's prime rate (8.5%) or LIBOR
plus .875% (6.8% at December 31, 1997).
Bonds and Mortgages Payable
The notes payable, convertible debentures, bank notes payable, bonds and
mortgages payable are presented net of unamortized debt issuance costs of
$10,610,000 and $8,198,000 at December 31, 1997 and 1996, respectively.
Amortization expense associated with the debt issuance costs amounted to
$2,692,000, $2,636,000 and $4,994,000 for the years ended December 31, 1997,
1996 and 1995, respectively, and is reflected in interest expense.
All debt instruments contain certain covenants, the most restrictive of
which limits the ratio of total liabilities to consolidated tangible
shareholders' equity.
The aggregate maturities of notes payable, convertible debentures, and
bonds and mortgages payable, excluding the bank notes payable, for the five
years subsequent to December 31, 1997, are as follows:
(In thousands)
1998.................. $ 61,192
1999.................. 31,939
2000.................. 173,073
2001.................. 184,577
2002.................. 191,471
In July and August 1995, Realty prepaid senior unsecured notes and senior
mortgage notes payable of $296,800,000, which were due between 1995 and 2001,
with interest rates ranging from 10.00% to 10.86%. The transaction resulted in
prepayment penalties and acceleration of unamortized debt costs totaling
$33,454,000, which was an extraordinary item reflected as a loss from prepayment
of debt in the accompanying income statement for the year ended December 31,
1995. Net proceeds from the issuance of approximately $300,000,000 of notes and
convertible debentures with interest rates ranging from 7.375% to 8.56% were
used for the prepayment.
9. Lease Commitments
Realty's land and facilities are generally leased pursuant to
noncancelable, fixed-term operating leases expiring from 1998 to 2011. The
leases ordinarily provide multiple, five-year renewal options and the right of
first refusal or the option to purchase the facilities at the greater of the
fair market value or Realty's investment at the end of the initial term of the
lease or at various times during the lease.
41
<PAGE>
MEDITRUST CORPORATION AND MEDITRUST OPERATING COMPANY
AND SUBSIDIARIES
NOTES TO COMBINED CONSOLIDATED FINANCIAL STATEMENTS
9. Lease Commitments, Continued
The lessees are required to pay aggregate base rent during the lease term
and applicable debt service payments as well as percentage, supplemental and
additional rent (as defined in the lease agreements). The majority of the leases
are triple net which generally require the lessees to pay all taxes, insurance,
maintenance and other operating costs of the land and facilities.
Future minimum lease payments, excluding debt service payments, expected
to be received by Realty during the initial term of the leases for the years
subsequent to December 31, 1997, are as follows:
(In thousands)
1998........................... $123,101
1999........................... 118,031
2000........................... 114,391
2001........................... 108,016
2002........................... 105,253
Thereafter..................... 495,150
10. Legal Proceedings
On November 14, 1997 the matter entitled, Raymond Wechsler Administrative
Trustee of the Towers Financial Corporation Administrative Trust v. New Medico
Holding Co., Inc. et al; in which Realty was named a defendant was settled and
subsequently dismissed as to Realty. In connection with the settlement, Realty
made a payment of $12,100,000 and received accounts receivable with a face value
of approximately $12,000,000 which has been recorded at a net carrying value of
approximately $2,000,000.
On January 8, 1998 the Companies received notice that they were named as
a defendant in an action entitled, Lynn Robbins v. William J. Razzouk, et al;
Civil Action No. 98CI-00192 filed January 7, 1998 in the District Court of Bexar
County, Texas and on January 20, 1998 the Companies received notice that they
were named as a defendant in an action entitled, Adele Brody v. William J.
Razzouk, et al., Civil Action No. 98CI-00456 filed January 12,1998 in the
District Court of Bexar County, Texas. The complaints which are almost identical
(i) allege, in part, that La Quinta Inns, Inc. ("La Quinta") and its directors
violated their fiduciary duty, duty of care and loyalty to La Quinta
shareholders by entering into a merger agreement with the Companies without
having first invited other bidders, and the Companies aided and abetted La
Quinta and its directors in the alleged breaches, and (ii) seek injunctive
relief enjoining the merger with La Quinta and compensatory damages. The
Companies are currently investigating these actions and, at present, believe
that the actions are entirely without merit.
The Companies are also a party to a number of other claims and lawsuits
arising out of the normal course of business; the Companies believe that none of
these claims or pending lawsuits, either individually or in the aggregate, will
have a material adverse affect on the Companies business or on their
consolidated financial position or results of operations.
42
<PAGE>
MEDITRUST CORPORATION AND MEDITRUST OPERATING COMPANY
AND SUBSIDIARIES
NOTES TO COMBINED CONSOLIDATED FINANCIAL STATEMENTS
11. Stock Option and Benefit Plans
Effects of the Merger
Prior to the date of the Merger, Meditrust had two fixed stock
option-based compensation plans: the 1988 Stock Option Plan and the 1992 Equity
Incentive Plan (the "Former Meditrust Plans"). Incentive awards under the Former
Meditrust Plans were granted at the discretion of the Board of Trustees and
included both non-qualified and incentive stock options to purchase Meditrust
shares of beneficial interest. The aggregate number of shares of beneficial
interest available for issuance upon option exercise under the Former Meditrust
Plans was 5% of the number of outstanding shares of beneficial interest. Up to
500,000 shares of beneficial interest available under each of the Former
Meditrust Plans could be issued pursuant to incentive stock options. Trustees,
officers and key employees of Meditrust or any other entity providing similar
services to Meditrust and its officers, directors and key employees were
eligible to participate under the Former Meditrust Plans. Options granted under
the Former Meditrust Plans expire 10 years from the date of grant. Generally,
one-third of all such options become exercisable at the end of each year
following the date of issuance.
In connection with the Merger (i) The Santa Anita Realty Enterprises,
Inc. 1995 Share Award Plan and The Santa Anita Operating Company 1995 Share
Award Plan were amended and restated and are now entitled the Meditrust
Corporation Amended and Restated 1995 Share Award Plan (the "Meditrust
Corporation Plan") and the Meditrust Operating Company Amended and Restated 1995
Share Award Plan (the "Meditrust Operating Plan", and together with the
Meditrust Corporation Plan, the "Plans"), (ii) the Former Meditrust Plans were
terminated and (iii) all of the outstanding stock options and employee stock
grants issued under the Former Meditrust Plans were assumed under the Meditrust
Corporation Plan.
After the consummation of the Merger, and pursuant to the merger
agreement, each outstanding option to purchase shares of beneficial interest of
Meditrust (each a "Meditrust Option") was converted into an option to purchase
such number of Paired Common Shares of The Meditrust Companies as was equal to
the number of Meditrust shares of beneficial interest issuable upon exercise of
such Meditrust Option multiplied by the Merger exchange ratio of 1.2016. Each
Meditrust Option became immediately exercisable at an exercise price equal to
the exercise price at the date of grant divided by the exchange ratio, except
for certain Meditrust Options to purchase 2.1 million Meditrust shares of
beneficial interest at $39.375 per share granted to senior management of
Meditrust on August 8, 1997 (including options to purchase 1 million shares of
beneficial interest granted to Abraham D. Gosman), which options will vest over
5 years from the date of grant and will be subject to the same adjustment.
After the Merger, the Board of Directors of each of The Meditrust
Companies approved certain amendments to the Meditrust Corporation Plan and the
Meditrust Operating Plan and authorized the restatement of each of the Plans
effective as of November 5, 1997. The Meditrust Corporation Plan, as so amended
and restated, provides that the maximum number of Common Shares (the "Meditrust
Corporation Shares") that may be issued under the Meditrust Corporation Plan
shall not exceed the sum of 3,616,741 plus an amount equal to 5% of the
Meditrust Corporation Shares outstanding from time to time. The Meditrust
Operating Plan provides that the maximum number of Common Shares (the "Meditrust
Operating Shares") that may be issued under the Meditrust Operating Plan shall
not exceed an amount equal to 5% of the Meditrust Operating Shares outstanding
from time to time. Under
43
<PAGE>
MEDITRUST CORPORATION AND MEDITRUST OPERATING COMPANY
AND SUBSIDIARIES
NOTES TO COMBINED CONSOLIDATED FINANCIAL STATEMENTS
11. Stock Option and Benefit Plans, Continued
each of the Plans, the maximum number of options and stock appreciation rights
that may be granted to an eligible person during any one year period shall not
exceed 450,000 subject to certain adjustments. Also under each of the Plans,
awards are to be issued either as Options, Dividend Equivalents, Stock
Appreciation Rights, Restricted Stock Awards, Performance Share Awards or Stock
Bonuses (each, an "Award"). At December 31, 1997, under the Meditrust
Corporation Plan and the Meditrust Operating Plan, 4,331,396 Meditrust Corporate
Shares and 4,086,256 Meditrust Operating Shares, respectively, were available
for future grant.
Each Award expires on such date as determined by personnel and the
Compensation Committee of the Board of Directors (the "Committee"), but in the
case of options or other rights to acquire Paired Common Shares, not later than
10 years after the award date. Options granted under each of the Plans vest
according to a schedule determined by the Committee. The Committee may authorize
the deferral of any payment of cash or issuance of Paired Common Shares under
each of the Plans at the election and request of a participant. Up to 4,000,000
Shares are available under each of the Plans to be issued as incentive stock
options. Directors, officers, employees and individual consultants, advisors or
agents who render or who have rendered bona fide services to the corporation are
eligible to participate in the Plan for such corporation.
The Committee is provided discretion to accelerate or extend the
exercisability or vesting of any or all such outstanding Awards within the
maximum 10 year period, including in the event of retirement, death or
termination of employment. Options outstanding at December 31, 1997 expire in
1998 through 2007.
Under each of the Meditrust Corporation Plan and the Meditrust Operating
Plan, a like number of Shares of the Meditrust Corporation Shares or Meditrust
Operating Shares, as the case may be, shall be purchased from the other
corporation or arrangements shall be made with such other corporation for the
simultaneous issuance by the other corporation of the same number of Paired
Common Shares as the number of Common Shares issued in connection with an Award.
Under each of the Plans, the option price shall not be less than the par value
of the Meditrust Corporation Shares and the Operating Company Shares subject to
the Award. In the event of a "change in control," as defined in each of the
Plans, all options outstanding will become fully vested.
44
<PAGE>
MEDITRUST CORPORATION AND MEDITRUST OPERATING COMPANY
AND SUBSIDIARIES
NOTES TO COMBINED CONSOLIDATED FINANCIAL STATEMENTS
11. Stock Option and Benefit Plans, Continued
Accounting Treatment
The Companies apply APB 25 and related Interpretations in accounting for
these plans. Accordingly, no compensation cost has been recognized for the fixed
stock option plans.
Options to purchase 937,000 Realty Shares and 288,000 Operating Shares
were exercisable as of December 31, 1997.
Had compensation cost for the Companies' stock option-based compensation
plans been determined based on the fair value at the grant dates for awards
under those plans consistent with the method pursuant to SFAS 123, the
Companies' net income and earnings per Share would have been reduced to the pro
forma amounts indicated below:
For the years ended December 31,
--------------------------------
(In thousands, except per Share amounts) 1997 1996 1995
---- ---- ----
Net income:
As reported $162,412 $157,976 $ 86,518
Pro forma* 160,586 157,209 85,964
Earnings per Share:
Basic as reported $ 2.14 $ 2.21 $ 1.51
Diluted as reported 2.12 2.20 1.51
Basic pro forma* 2.11 2.20 1.50
Diluted pro forma* 2.09 2.19 1.50
* The pro forma effect of compensation costs determined using the fair value
based method are not indicative of future amounts when the new method will
apply to all outstanding vested and non-vested awards.
45
<PAGE>
MEDITRUST CORPORATION AND MEDITRUST OPERATING COMPANY
AND SUBSIDIARIES
NOTES TO COMBINED CONSOLIDATED FINANCIAL STATEMENTS
11. Stock Option and Benefit Plans, Continued
The fair value of each option grant is estimated on the date of grant
using the Black-Scholes option-pricing model with the following assumptions
used for grants in 1997, 1996 and 1995, respectively: dividend yield of
7.9, 8.2 and 7.1 percent, expected volatility of 16, 16 and 17 percent for
each year, respectively; risk-free interest rates ranging from 5.9 to 6.7
percent in 1997, 5.9 to 6.6 percent for 1996 and 6.9 percent for 1995; and
expected life of four years for each grant.
<TABLE>
<CAPTION>
1997 1996 1995
--------------------- -------------------- ----------------------
Weighted- Weighted- Weighted-
Average Average Average
Shares Exercise Shares Exercise Shares Exercise
(000) Price (000) Price (000) Price
----- ----- ---- ----- ---- -----
<S> <C> <C> <C> <C> <C> <C>
Fixed Options
Outstanding at beginning
of year 1,171 $25 1,593 $24 646 $23
Granted 2,639 33 127 27 1,267 25
Options from merger 288 17
Exercised (272) 24 (477) 25 (254) 26
Forfeited (15) 25 (72) 27 (66) 23
------- -------- -------
Outstanding at end of year 3,811 30 1,171 25 1,593 24
======= ======== =======
Options exercisable at year-
end 1,225 509 397
Weighted-average fair value
of options granted during
the year $2.71 $2.52 $1.91
</TABLE>
The following table summarizes information about fixed stock options outstanding
at December 31, 1997:
<TABLE>
<CAPTION>
Options Outstanding Options Exercisable
------------------- -------------------
Weighted-
Number Average Weighted- Number Weighted-
Range of Outstanding Remaining Average Exercisable at Average
Exercise Prices at 12/31/97 Contractual Life Exercise Price 12/31/97 Exercise Price
--------------- ----------- ---------------- -------------- -------- --------------
<S> <C> <C> <C> <C> <C>
$15.60 - $21.85 224,770 3.53 $ 21.13 224,770 $ 21.13
$26.32 882 5.97 26.32 882 26.32
$27.46 7,611 6.70 27.46 7,611 27.46
$25.07-$25.17 586,577 7.22 25.07 586,577 25.07
$24.97-$29.44 84,327 8.53 27.53 84,327 27.53
$30.58-$36.46 2,618,690 9.61 32.78 32,847 31.07
$12.625-$29 288,300 6.56 16.95 288,300 16.95
--------- ------- --------- ------
3,811,157 8.62 $ 29.58 1,225,314 $23.41
========= ======= ========= ======
</TABLE>
46
<PAGE>
MEDITRUST CORPORATION AND MEDITRUST OPERATING COMPANY
AND SUBSIDIARIES
NOTES TO COMBINED CONSOLIDATED FINANCIAL STATEMENTS
11. Stock Option and Benefit Plans, Continued
Retirement and Other Benefits
Realty entered into a non-qualified Trustee Retirement Plan (the "Plan")
during 1996. The Plan, which is unfunded, provides eligible Trustees defined
retirement benefits based on Trustee fees and years of service. At December 31,
1997, the present value of the accumulated benefit obligation was $1,616,000.
Retirement expense including prior amortization cost and a current provision for
the Plan totaled $346,000 and $350,000 in the accompanying income statements for
1997 and 1996, respectively.
Realty and Operating Company have a joint non-contributory defined
benefit Retirement Plan for most year-round employees of the prior Santa Anita
Companies with benefits based on service and compensation. Realty and Operating
Company also have defined benefit Deferred Compensation Agreements for selected
prior management employees with a fixed benefit at retirement age.
The Company's funding policy is to contribute to the Retirement Plan at
least the minimum required contribution under ERISA. Assets are in a group
annuity contract with an insurance company. For the Deferred Compensation
Agreements, the Agreements are unfunded and the Company's funding policy is to
pay benefits when due.
The following table sets forth the plans' funded status reconciled with
the amount included in accrued liabilities in the balance sheet at December 31,
1997 (in thousands):
1997
----
Actuarial present value of benefit obligations:
Projected benefit obligation for service rendered to date (14,123)
Plan assets at fair value 6,688
--------
Projected benefit obligation in excess of plan assets $ (7,435)
Unrecognized net loss (gain) from past experience different
from that assumed and from changes in assumptions 230
Prior service cost not yet recognized in net periodic pension cost -
Unrecognized transition obligation -
--------
Accrued pension cost included in other liabilities $ (7,205)
========
The net periodic pension cost for the period from November 5, 1997 to
December 31, 1997 include the following components (in thousands):
1997
----
Service cost - benefits attributable to service during the period $ -
Interest cost on projected benefit obligation 149
Actual return on assets (230)
Net amortization and deferral 144
--------
Net periodic pension cost $ 63
========
47
<PAGE>
MEDITRUST CORPORATION AND MEDITRUST OPERATING COMPANY
AND SUBSIDIARIES
NOTES TO COMBINED CONSOLIDATED FINANCIAL STATEMENTS
11. Stock Option and Benefit Plans, Continued
For purposes of measuring the benefit obligations of the Retirement Plan
the discount rate as of December 31, 1997 and November 5, 1997 were 6.0% and
6.3%, respectively. The expected long-term rate of return on assets was 8.0%.
For purposes of measuring the benefit obligations of the Deferred Compensation
Agreements the discount rate as of December 31, 1997 and November 5, 1997 were
6.75% and 7.00%, respectively and the rate of increase in future compensation
was 3.5%.
During 1995, Realty entered into a Split-Dollar Life Insurance Agreement
with a trust established by the Chairman and Chief Executive Officer, pursuant
to which Realty has agreed to advance policy premiums on life insurance policies
paying a death benefit to the trust. Realty is entitled to reimbursement of the
amounts advanced, without interest, which right is secured by an assignment of
the life insurance policies and a promissory note of the Chairman in the amount
of the excess, if any, of the premiums paid by Realty over the cash surrender
value of the insurance policies.
The Companies have savings plans which qualify under Section 401(K) of
the Internal Revenue Code under which all employees are entitled to participate
up to a specified annual maximum contribution level. The Companies match 50% of
each employee's contributions which amounted to $106,000, $90,000 and $97,000,
for the years ended December 31, 1997, 1996 and 1995, respectively.
12. Income Taxes
For tax reporting purposes, the surviving legal entities from the Merger
are the surviving entities.
As a REIT, Realty is taxed only on undistributed REIT income. During the
year ended December 31, 1997, Realty distributed at least 95% of its REIT
taxable earnings to its shareholders.
Section 382 of the Internal Revenue Code of 1986, as amended, restricts a
corporation's ability to use its NOL carryforwards following certain "ownership
changes." Operating Company determined that such an ownership change occurred as
a result of the Merger and accordingly the amount of NOL carryforwards available
for use in any particular taxable year will be limited. To the extent that
Operating Company does not utilize the full amount of the annual NOL limit, the
unused amount may be used to offset taxable income in future years. NOL
carryforwards expire 15 years after the tax year in which they arise, and the
last of Operating Company's NOL carryforwards will expire in 2012. A valuation
allowance is provided for the full amount of the NOL's as the realization of tax
benefits from such NOL's is not assured.
48
<PAGE>
MEDITRUST CORPORATION AND MEDITRUST OPERATING COMPANY
AND SUBSIDIARIES
NOTES TO COMBINED CONSOLIDATED FINANCIAL STATEMENTS
12. Income Taxes, Continued
Components of deferred income taxes for Meditrust Operating Company as of
December 31, 1997 are as follows:
Deferred tax assets: (In thousands)
Compensation deductible for tax purposes when paid $ 1,732
Pension contribution deductible for tax purposes when paid 762
Contribution carryover 60
Other 433
Federal tax effect on state deferred liabilities 170
Federal net operating loss carryovers 7,270
State net operating loss carryovers 1,160
Business reserve 953
Difference between tax and book depreciation 3,159
Valuation allowance (15,699)
--------
Total deferred assets -
========
Deferred tax liabilities:
State income taxes $ (501)
--------
Total deferred tax liabilities (501)
--------
Net liability for deferred income taxes $ (501)
========
A reconciliation of Operating Company's total income tax provision for
the initial period ended December 31, 1997 to the statutory federal corporation
income tax rate of 34% and the state rate of 9.3% is as follows:
(In thousands)
Computed "expected" tax provision $(5,375)
Nondeductible political contributions 6
Establishment (use) of tax net operating loss
carryforwards 5,306
Nondeductible Amortization 46
Other, net 17
-------
$ -
=======
49
<PAGE>
MEDITRUST CORPORATION AND MEDITRUST OPERATING COMPANY
AND SUBSIDIARIES
NOTES TO COMBINED CONSOLIDATED FINANCIAL STATEMENTS
13. Earnings Per Share
Combined consolidated earnings per Share is computed as follows:
<TABLE>
<CAPTION>
For the year ended December 31, 1997
------------------------------------
(In thousands, except per Share amounts) Income Shares Per Share
(Numerator) (Denominator) Amount
----------- ------------- ------
<S> <C> <C> <C>
Basic EPS:
Income available to common shareholders $162,412 76,070 $2.14
Effect of Dilutive Securities:
Stock Options 454
--------------------------------------------
Diluted EPS:
Income available to common shareholders $162,412 76,524 $2.12
============================================
</TABLE>
<TABLE>
<CAPTION>
For the year ended December 31, 1996
------------------------------------
(In thousands, except per Share amounts) Income Shares Per Share
(Numerator) (Denominator) Amount
----------- ------------- ------
<S> <C> <C> <C>
Basic EPS:
Income available to common shareholders $157,976 71,445 $2.21
Effect of Dilutive Securities:
Stock Options 306
--------------------------------------------
Diluted EPS:
Income available to common shareholders $157,976 71,751 $2.20
============================================
</TABLE>
50
<PAGE>
MEDITRUST CORPORATION AND MEDITRUST OPERATING COMPANY
AND SUBSIDIARIES
NOTES TO COMBINED CONSOLIDATED FINANCIAL STATEMENTS
13. Earnings Per Share, Continued
<TABLE>
<CAPTION>
For the year ended December 31, 1995
------------------------------------
(In thousands, except per Share amounts) Income Shares Per Share
(Numerator) (Denominator) Amount
----------- ------------- ------
<S> <C> <C> <C>
Income before extraordinary item $119,972
Basic EPS:
Income available to common shareholders $119,972 57,151 $2.10
Effect of Dilutive Securities:
Stock Options 306
--------------------------------------------
Diluted EPS:
Income available to common shareholders $119,972 57,457 $2.09
============================================
</TABLE>
Weighted average common shares of Realty for purposes of computing Basic
EPS were 76,274,000, 71,445,000 and 57,151,000 and for Diluted EPS were
77,007,000, 71,751,000 and 57,423,000 for the years ended December 31, 1997,
1996 and 1995, respectively. Weighted average common shares of Operating Company
for purposes of computing Basic and Diluted EPS for the year ended December 31,
1997 were 82,490,000 and 83,223,000, respectively.
Operating Company holds common shares of Realty which are unpaired
pursuant to a stock option plan approved by the shareholders. The common shares
held totaled 1,305,000 as of December 31, 1997. These shares affect the
calculation of Realty's net income per common share but are eliminated in the
calculation of net income per Paired Common Share for The Meditrust Companies.
Convertible debentures outstanding for the years ended December 31,
1995, 1996 and 1997 are not included in the computation of diluted EPS because
the addition of interest to the numerator provides an antidilutive effect.
14. Transactions between Realty and Operating
Operating Company leases the Santa Anita Racetrack from Realty for the
full year for a fee of 1.5% of the on-track wagering on live races at Santa
Anita Racetrack. In addition, Operating Company pays to Realty 26.5% of its
wagering commissions from satellite wagering (not to exceed 1.5% of such
wagering). When Operating Company operates as a satellite for Hollywood Park
Racetrack, Del Mar Racetrack and Pomona Fairplex, Operating Company pays 26.5%
of its wagering commissions as additional rent to Realty. Operating Company has
sublet the racetrack to Oak Tree to conduct Oak Tree's annual thoroughbred horse
racing meet (27 days in 1997), which commences in late September or early
October. Oak Tree normally races five weeks in even-numbered years and six weeks
in odd-numbered years. For the period November 5, 1997 through December 31,
1997, Operating Company paid Realty (including charitable days) $740,000, in
rent. The lease arrangement between Operating Company and Realty requires
Operating Company to assume costs attributable to taxes, maintenance and
insurance.
51
<PAGE>
MEDITRUST CORPORATION AND MEDITRUST OPERATING COMPANY
AND SUBSIDIARIES
NOTES TO COMBINED CONSOLIDATED FINANCIAL STATEMENTS
14. Transactions between Realty and Operating, Continued
Operating Company delivered a note to Realty for $13,128,000 on November
5, 1997. The purpose of the note was to adjust the relative values of Meditrust
and Meditrust Acquisition Company in order to ensure that the Mergers qualified
as tax free reorganizations. This transaction is eliminated in the Combined
Consolidated financial statements. However, due to the affiliation of Realty and
Operating Company, the note has been classified in shareholders' equity in
Realty and a note payable has been recorded in Operating Company. The note is
due on November 1, 2009 and bears interest at 6.42%. Interest is payable
quarterly in arrears.
Operating Company owns 1,305,000 shares of Realty as a result of
acquisition activity and for the Operating Company Stock Option Plan.
15. Quarterly Financial Information (Unaudited)
The following quarterly financial data summarizes the unaudited quarterly
results for the combined Companies for the years ended December 31, 1997 and
1996.
<TABLE>
<CAPTION>
(in thousands, except per Share amounts) Quarter Ended 1997
--------------------------------------------------
March 31 June 30 September 30 December 31
-------- ------- ------------ -----------
<S> <C> <C> <C> <C>
Revenue $67,965 $71,014 $74,744 $80,632
Net income 41,053 41,947 42,052 37,360
Basic earnings per Share:
Net income 0.56 0.57 0.57 0.44
</TABLE>
<TABLE>
<CAPTION>
(in thousands, except per Share amounts) Quarter Ended 1996
--------------------------------------------------
March 31 June 30 September 30 December 31
-------- ------- ------------ -----------
<S> <C> <C> <C> <C>
Revenue $59,327 $62,173 $64,801 $67,723
Net income 35,533 40,243 40,721 41,479
Basic earnings per Share:
Net income 0.53 0.55 0.56 0.57
</TABLE>
52
<PAGE>
MEDITRUST CORPORATION AND MEDITRUST OPERATING COMPANY
AND SUBSIDIARIES
NOTES TO COMBINED CONSOLIDATED FINANCIAL STATEMENTS
16. Subsequent Events
On January 3, 1998, the Companies signed a definitive merger agreement
with La Quinta providing for Realty to acquire La Quinta by means of a merger of
the two companies. The total consideration for the transaction will amount to
$26.00 per share, in a combination of newly issued Shares in the Companies and
cash, subject to certain cap and collar mechanisms. The transaction is expected
to close in the second quarter of 1998.
On January 9, 1998, the Board of Directors of Realty declared a
distribution of $.60625 per Share payable on February 13, 1998, to shareholders
of record on January 30, 1998. The distribution related to the post Merger
period ending December 31, 1997.
On January 11, 1998, Realty signed a definitive merger agreement with
Cobblestone Holdings, Inc., Parent of Cobblestone Golf Group, Inc.,
("Cobblestone"), under which Realty will acquire all of the outstanding
preferred and common stock of Cobblestone for the Companies' Shares valued at
approximately $241,000,000. In addition, under the terms of the agreement,
approximately $154,000,000 of Cobblestone debt and associated costs will be
either refinanced or assumed as a condition of closing. The Cobblestone
transaction is anticipated to close in late February 1998.
On February 2, 1998, the Department of Treasury released an explanation
of the revenue proposals included in the Clinton Administration's fiscal 1999
budget (the "Tax Proposals"). The Tax Proposals include a freeze on the
grandfathered status of paired share REITs such as The Meditrust Companies.
Under this proposal, Realty and Operating would be treated as one entity with
respect to properties acquired on or after the date of the first Congressional
committee action with respect to such proposal and with respect to activities or
services relating to such properties that are undertaken or performed by one of
the paired entities on or after such date. No exception is provided for
properties acquired pursuant to pre-existing binding contracts. This proposal
would prevent The Meditrust Companies from using their paired structure to
operate properties acquired on or after such effective date. The Tax Proposals
also would prohibit REITs from holding stock of a corporation possessing more
than 10% of the vote or value of all classes of stock of the corporation. This
proposal would be effective with respect to stock acquired on or after the date
of the first Congressional committee action with respect to the proposal;
provided that the proposal would apply to stock acquired before such effective
date if the subsidiary corporation engaged in a new trade or business or
acquired substantial new assets. If the Tax Proposals are enacted in their
current form, and the merger with La Quinta or Cobblestone closes on or after
the date of first committee action, Operating (including corporate subsidiaries
of Realty that are controlled by Operating) would not be able to operate the
properties acquired by Realty in the merger in the manner currently contemplated
without disqualifying Realty as a REIT. Moreover, the Treasury's explanation
provides only a general description of the Tax Proposals, and the details of the
statutory amendments that would implement the proposals are not known.
Consequently, it is impossible to determine all of the ramifications to the
Companies of the Tax Proposals. Restructuring the operations of Realty and
Operating to comply with the rules contemplated by the Tax Proposals could cause
The Meditrust Companies to incur substantial tax liabilities, to recognize an
impairment loss on their goodwill asset, or otherwise adversely affect The
Meditrust Companies.
On February 26, 1998, the Companies entered into two transactions with
Merrill Lynch International, a UK-based broker/dealer subsidiary of Merrill
Lynch & Co., Inc. ("MLI"). Pursuant to the terms of a stock purchase agreement,
MLI agreed to purchase 8,500,000 shares of Series A Non-Voting Convertible
Common Stock from each of the Companies at a purchase price of $32.625 per
share. The Series A Non-Voting Convertible Common Stock is non-voting paired
common stock that will convert to Paired Common Shares on the earlier of (a) the
business day following the date on which the stockholders of the Companies have
approved the La Quinta merger transaction or (b) the date of any termination of
the La Quinta merger agreement. Net proceeds from this private placement of
securities of approximately $272,000,000 were used by the Companies to repay
existing indebtedness. Separately, the Companies and MLI entered into a purchase
price adjustment agreement under which Meditrust will, within one year from the
date of MLI's purchase, adjust the original $32.625 purchase price per share
based on the market price of the Shares at the time of the adjustment, by
receiving Shares from MLI or by issuing additional Shares to MLI.
53
<TABLE> <S> <C>
<ARTICLE> 5
<LEGEND>
This schedule contains summary financial information extracted from (A) the
consolidated balance sheet as of December 31, 1997 and the consolidated
statement of operations for the initial period ended December 31, 1997 of
Meditrust Operating Company and is qualified in its entirety by reference to
such (B) Financial Statements.
</LEGEND>
<CIK> 0000313749
<NAME> MEDITRUST OPERATING COMPANY
<MULTIPLIER> 1,000
<CURRENCY> U.S. DOLLARS
<S> <C>
<PERIOD-TYPE> 3-MOS
<FISCAL-YEAR-END> DEC-31-1997
<PERIOD-START> OCT-3-1997
<PERIOD-END> DEC-31-1997
<EXCHANGE-RATE> 1
<CASH> 19,673
<SECURITIES> 0
<RECEIVABLES> 2,580
<ALLOWANCES> 0
<INVENTORY> 0
<CURRENT-ASSETS> 25,331
<PP&E> 10,700
<DEPRECIATION> 171
<TOTAL-ASSETS> 120,426
<CURRENT-LIABILITIES> 47,496
<BONDS> 13,128
0
0
<COMMON> 58,552
<OTHER-SE> (600)
<TOTAL-LIABILITY-AND-EQUITY> 120,426
<SALES> 0
<TOTAL-REVENUES> 5,365
<CGS> 0
<TOTAL-COSTS> 4,263
<OTHER-EXPENSES> 0
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 209
<INCOME-PRETAX> (600)
<INCOME-TAX> 0
<INCOME-CONTINUING> 0
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> (600)
<EPS-PRIMARY> (.01)
<EPS-DILUTED> (.01)
</TABLE>
<TABLE> <S> <C>
<ARTICLE> 5
<LEGEND>
This schedule contains summary financial information extracted from (A) the
consolidated balance sheet as of December 31, 1997 and the consolidated
statement of income for the year ended December 31, 1997 of Meditrust
Corporation and is qualified in its entirety by reference to such (B) Financial
Statements.
</LEGEND>
<CIK> 0000314661
<NAME> MEDITRUST CORPORATION
<MULTIPLIER> 1,000
<CURRENCY> U.S. DOLLARS
<S> <C>
<PERIOD-TYPE> 12-MOS
<FISCAL-YEAR-END> DEC-31-1997
<PERIOD-START> JAN-01-1997
<PERIOD-END> DEC-31-1997
<EXCHANGE-RATE> 1
<CASH> 24,059
<SECURITIES> 0
<RECEIVABLES> 26,859
<ALLOWANCES> 0
<INVENTORY> 0
<CURRENT-ASSETS> 0
<PP&E> 1,597,689
<DEPRECIATION> 124,582
<TOTAL-ASSETS> 3,259,536
<CURRENT-LIABILITIES> 0
<BONDS> 1,377,438
0
0
<COMMON> 1,997,741
<OTHER-SE> (192,373)
<TOTAL-LIABILITY-AND-EQUITY> 3,259,536
<SALES> 0
<TOTAL-REVENUES> 289,923
<CGS> 0
<TOTAL-COSTS> 0
<OTHER-EXPENSES> 0
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 87,412
<INCOME-PRETAX> 163,012
<INCOME-TAX> 0
<INCOME-CONTINUING> 0
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 163,012
<EPS-PRIMARY> 2.14
<EPS-DILUTED> 2.12
</TABLE>
